In (reluctant) support of teachers

Michael Reddell Education, Immigration, Uncategorized

I’m no great fan of school teachers (at least as found in contemporary New Zealand –  a re-read last week of Goodbye Mr Chips was another matter altogether).  Over ten years now we’ve encountered a handful of very good teachers, quite a few duds, and lots who seemed no better than mediocre.  There was the Principal who, when my oldest child started school, told a gathering of parents of new entrants that it was really quite inappropriate to teach content as almost all of it would be out of date before long.   And when this particular Principal (together with the NZEI) was using the pages of the Dominion-Post to promote my daughter’s teacher –  apparently genuinely excellent –  as an illustration of the case for more pay, I made myself unpopular by noting that in the same school there were less than outstanding teachers, and that most people knew who they were.   Then there was the science teacher at the local intermediate school teaching conspiracy theories around 9/11.      Teachers who want to tell students off for discussing the previous day’s playground incident in which a deeply troubled student was on the loose with a knife and the school was in lockdown.   And then there is the endless “indoctrination”, mostly probably by teachers not quite smart enough to realise there really is an alternative view to their particular right-on views on colonialism, capitalism, homosexuality or whatever, and not apparently trained to the view (common in my youth) that a teacher’s personal political views (let alone sexual preferences) weren’t something to obtrude into the classroom.   If there are any teachers in Wellington sympathetic to a market economy, they must keep rather quiet about it.

So I’m not normally overly sympathetic to teachers.  And mostly we are stuck with them –  the teachers’ unions being among those most strongly opposed to effective school choice.   That said, as a stay-at-home parent, their stopwork meetings and strikes don’t inconvenience, or greatly bother, me.  It can be nice to have a bonus day at home together.

Of course, like any occupation there can at times be difficulty filling particular teaching positions.  When I was young we moved from Christchurch to Kawerau, and either on the day we arrived, or possibly the next day, the Principal of the local high school was on the door step.  He’d heard that the new Baptist minister’s wife had science qualifications and teaching experience (10 years previously) and he was desperate for staff.

Perhaps not all such specific vacancy stories tell anything meaningful about salaries and/or working conditions.  But when the stories multiply, and there is evidence of a material gap between demand and supply (demand exceeding supply) at the current price is usually a sign that the price should be rising, perhaps quite a bit.

How confident can we be that there is a shortage of teachers at current salaries?  Principals tell us so, but they –  members of same unions –  aren’t entirely disinterested observers (it was only a few weeks ago that a newsletter came home from one local school in which the Principal urged us parents to get along and support the teacher protest).    And almost every day, at least in the schools I have exposure to (three at present), there is a warm body in front of each class.

But then in this morning’s newspaper we read that the government itself –  the ultimate employer/funder of most school teachers –  recognises the problem.  The Minister of Education “is pledging to find at least 400 overseas teachers for the 2019 academic year”.

Which is rather convenient for the government surely?  As the near-monopsonist purchaser of school teaching services, it deals with shortages by using its power as  controller of the immigration and work visa regime to attempt to meet its staffing problems.

As I’ve written previously, there can be a place for work visas where, for example, there is a sudden and unexpected increase in a demand for a particular skill, or even where a particular skill is very rare (the market for some speciality skills can be very thin indeed).   But there are no real surprises as to how many teachers are needed nationwide –  at bare minimum for people born here there is a five year lead time, and that for new entrant teachers.  And decent teaching skills aren’t, or shouldn’t be, that hard to come by –  the PPTA apparently claims 17000 members.    These should be jobs that can be perfectly adequately filled by local residents –  who will have the added bonus of understanding the local culture –  at least if the labour market was allowed to work.

A few months ago I wrote here (and here) about how the work visa system appeared to be enabling local authorities to keep down bus driver wages and (thus) fares and ratepayer funding by substituting foreign workers in place of locals.    The bus driver case looked particularly egregious –  it being a quite modestly-skilled role into which someone could be trained in 6-8 weeks.   But it isn’t clear to me that the school teacher case is really so different, even granting that the skill levels are higher, and thus the inevitable local training and recruitment lags would be a bit longer.

Of course, like all work visa applications the case for importing teachers will be supported by evidence that locals couldn’t be recruited. But if you keep the wage level down it isn’t overly surprising that New Zealanders with other options will pursue them, and you will be left with an apparent shortage.

And the market in teachers is a pretty dysfunctional one.  We have national pay scales even though it must be a great deal harder to get teachers in Auckland than in Timaru (and that private sector jobs typically pay a bit more, for the same job, in Auckland than in Timaru), the pay scales for secondary teachers don’t differentiate by subject (even though the alternative options for a good science teacher and a good history teacher may be quite different, and we still have something like pay parity between kindergarten teachers and secondary school teachers.   For that we can blame both the teacher unions and successive governments (National-led and Labour-led).

Nonetheless,  there does seem to be a shortage of (good) teachers, and it isn’t obvious that the government should be able to use the immigration system to avoid meeting the market (while no doubt claiming in other fora that heavy use of work visas in particular sectors doesn’t hold down wages in those sectors).

When writing about bus drivers, I suggested adopting this sort of policy

To that end, I’ve argued previously for a system in which Essential Skills visas are granted on these terms:

a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa, with this provision to apply regardless of skill level).

b. Subject to a fee, of perhaps $20000 per annum.

If an employer really can’t find a local hire for a modestly-skilled (or unskilled) position, they’d be able to get someone from overseas, but only by paying (to the Crown) a minimum annual fee of $20000.  It is pretty powerful incentive then to train someone local, or increase the salary on offer to attract someone local who can already do the job. If you can’t get a local to do a job for $40000 per annum, there might well be plenty of people to do it for $50000 (and still cheaper than paying the ongoing annual fee for a work visa employee).

Even in the context of teacher salaries –  where starting salaries are well above $40000 –  per annum – this looks like the starting basis for a workable model.

More generally, I have argued that

If we are going to have government officials administering something like a mass market Essential Skills visa scheme, and deciding who does and doesn’t get approval, surely a key aspect of any labour market test should be something along these lines?

“has the effective wage or salary rate for this occupation risen materially faster than wages and salaries more generally in New Zealand over the past couple of years?”

If not, how can you seriously use the term “skill shortage”?    Even if wages in a particular occupation have risen faster than the norm, it takes time for locals to respond and shift occupations, so one wouldn’t necessarily want to jump at the first sign of a bit of real wage inflation in a particular occupation, but if after a couple of years the pressures were persistent then some sort of Approval in Principle for temporary migrant labour –  at wages at or above those now prevailing in the domestic market – might make some sense as a shock absorber.  But MBIE seems perennially averse to markets adjusting in ways the generate higher real wages, even though that outcome is one core part of what we look for from a successful economy.

I’m not a fan of the teachers’ union propaganda arguing that some decades ago senior teachers earned as much as MPs, and that they should be again –  MPs seem to have been quite badly underpaid in that earlier period.  But I’d be surprised if the government could show that teacher salaries (and overall working condition-adjusted remuneration) have increased more rapidly than the market generally in recent years.  If not, surely higher salaries –  perhaps regionally differentiated – should be the first part of any adjustment, and if there is any resort permitted to offshore labour markets it should be explicitly temporary, backed by financial incentives/penalties of the sort I outlined above.

It sticks in the craw to stick up for teachers and their unions, but the market indications would appear to be on their side in this particular dispute.   Of course, the fact that there is a shortage doesn’t –  in an administered market like this –  tell one how much salaries should be adjusted (or the onerous paperwork burden eased), or the appropriate balance (starting salaries vs later progresssion) but the direction looks pretty clear.  And the proposal to resort to substantial offshore recruitment looks as if the government has indirectly conceded the case –  even as, again, it continues to preference the interests of offshore people over those of New Zealand workers.  Teachers might be less sympathetic than bus drivers, rest home workers, or shop assistants, but they are New Zealanders too.  Even, as it happens, substantial funders of the Labour Party.

A bare pass mark for the Board

Michael Reddell Reserve Bank Act reforms, Reserve Bank Board

The Reserve Bank’s Annual Report was published yesterday.  I’m not overly interested in the Bank’s own Annual Report, although a couple of things (one an omission) caught my eye.

The first was the sharp increase in staff turnover last year

RB turnover

Staff turnover of almost 20 per cent is very high.  The Bank explains it this way

Staff turnover increased during the year to an unusually high level for the Bank, in part due to an increase in the number of retirements and staff going on external secondments for development.

But it (even the “in part” bit) isn’t a very compelling explanation –  although I suppose both the Governor and Deputy Governor retired –  and the Bank hasn’t had any material changes in responsibilities, reduced budgets etc in the last year.  It would be interesting to know what the results of their most recent staff engagement survey looked like –  probably not that good when turnover is that high.

And it was a touch surprising that the Bank’s (self-adopted) Maori name doesn’t appear in the text at all, and even more surprising that the Governor’s new enthusiasm for talking of the Bank as some mythological pagan tree god doesn’t appear at all.   The report was signed off only three weeks ago, and we know this nonsense was well underway by then.   Perhaps the Governor didn’t think it would play well with Parliament –  although I’d have thought it might be one of the few places where it might be well-received.

But my main interest was in the Annual Report of the Bank’s Board –  a separate statutory requirement.   I’ve written about these reports each year (2015, 2016, and 2017), mostly repeating the points that:

(a) the Board isn’t like a real board of a business, a Crown entity, or even a charity or sports club having few/no decisionmaking responsibilities, instead

(b) the main role of the “Board” is to monitor and hold to account (on behalf of the Minister and the public) the Governor, and yet

(c) the Board has consistently acted, and communicated, as if their primary role was to have the back of the Governor, serving his interests not those of the  public.

And so no discouraging or critical word was ever heard from the Board, even in (say) egregious instances of the Governor attacking individuals.   From reading Board annual reports over the years you’d have to suppose that the Bank was perfect –  the sort of entity unknown to humankind – or that the Board was supine, and useless to taxpayers.

Consistent with all this, the Board’s Annual Report has been buried inside the Bank’s report –  you can’t even find it separately on the Bank’s website.  There is no press release from the chair about the Board’s report, and no mention of the Board’s annual report in the Governor’s own press release.   It still has the feel of a tame appendage of the Bank, working mostly in the Governor’s interests  (even if this year, for some reason, the Board’s report this year features first in the combined document itself).

But there has been some improvement over recent years.  A few years ago, the Board’s report was a mere two pages, and now it is five pages (with some other relevant descriptive material –  eg around conflicts of interest and remuneration of directors –  included in the Bank’s report).     There is also still a (relatively minor perhaps) factual error.   But there are some signs in this year’s report suggesting that just occasionally the Board thinks for itself.  Perhaps this isn’t unrelated to the fact that the second stage of the review of the Reserve Bank Act is looking at, among other things, the role of the Board and whether it adds any real value in its current form.

What in this year’s report makes me just slightly encouraged?

It certainly isn’t the treatment of monetary policy.  Reading the report you wouldn’t know that core inflation had been below the midpoint of the inflation target for eight years, even after the midpoint was made the explicit focus of monetary policy (by agreement between the Governor and the Minister) in 2012.  Instead, there is simply heartwarming praise of the policy processes, and if there are any issues at all about inflation they are, apparently, all the fault of the “global environment”.  Then again, none of the Board has any particular expertise in monetary policy.

But there were several positives.

First, while backing the inquiry into banking conduct and culture in New Zealand being undertaken by the FMA and the Reserve Bank, they explicitly note that

“conduct concerns are formally within the remit of the FMA”

which is a point I’ve been making for months, but which the Governor has never been willing to acknowledge, preferring to be the most visible face of an issue that really isn’t his responsibility.    It is a small acknowledgement, but they didn’t need to say it, and yet they chose to do so.  That deserves credit.

Second, the Board’s report explicitly refers to the damning survey results on the Reserve Bank published earlier this year in the New Zealand Initiative’s report on regulatory governance.  This was the report which summarised the results thus

In the ratings, the RBNZ’s overall performance across the 23 KPIs was poor. On average, just 28.6% of respondents ‘agreed’ or ‘strongly agreed’ that the RBNZ met the KPIs and 36% ‘disagreed’ or ‘strongly disagreed’. These figures compare very unfavourably with the FMA’s average scores of 60.8% and 10.3%, respectively.  They also compare unfavourably (though less so) with the Commerce Commission’s averages of 39.9% and 25.8%, respectively.

The Board writes

The Bank’s own relationships with regulated entities came under scrutiny with the publication of an independent review of regulatory governance in New Zealand. The Board met with the Chairs of the Boards of the four large trading banks as a means of gauging whether the opinions expressed in the review are widely held. Both the Board and the Governors are looking for continuous improvement in how the Bank interfaces with the regulated entities, specifically how it assesses the soundness and efficiency of its own regulatory actions (including the risks of unintended and inefficient consequences); how it assesses any tradeoffs between these two objectives; and how it reports on efficiency as well as soundness.

Pretty tame stuff, but better than nothing, and at least a recognition that there has been a problem.    The Governor’s own statement, by contrast, explicitly mentions the IMF FSAP and questions about the handling of CBL, but doesn’t mention at all this heavy criticism from well-informed locals, and the body of the report appears to brush off the NZI report results as largely resulting from one particular disputed policy (which frankly seems unlikely –  well-regarded and trusted institutions don’t score that badly when there is simply one specific thing that happens to upset people).

On CBL, however, the Board seem mostly in the mode of covering for management.

Given the public comment that was associated with the Bank securing interim liquidation of CBL Insurance Limited,  the Board requested information on the legal advice obtained and the reasons why the Bank’s investigation was not disclosed prior to court action being sought. The obligation to make disclosures to the share market rests with company directors, and a statutory requirement for confidentiality applied to the Bank’s investigation.

It is good that the Board asked the questions, but the answers don’t seem very satisfactory.  It was, after all, as I understand it, the Reserve Bank that compelled CBL not to tell shareholders (or, indirectly, creditors) what was going on.

My third small positive related to how the Board tells the story of what it does.

In the past, the Board has talked about cocktail functions it holds (for local elites) around various Board meetings this way

With most Board meetings…the Board hosts a larger evening function to engage with representatives of many local businesses and organisations, and to enhance our understanding of local economic developments and issues……. This outreach is a longstanding practice of the Board to ensure visibility of its role among the wider community, and to facilitate directors’ understanding of local economic developments, and the wider public’s understanding of the Bank’s policies.

But here they are this year

The Board met with business representatives and other important stakeholders over lunch at many of its meetings, and also hosted functions for local stakeholders following its regular meetings in Auckland and Wellington. These functions provide an opportunity for stakeholders to discuss issues with the Board and Governors following a presentation by Governors. The Board pays particular attention to any feedback on the messaging, transparency and accountability of the Bank, and is looking to the new Governor to ensure that there are improvements in some key stakeholder relationships in the next year.

If they still seem to tie themselves too closely to the Governor, there is a clear shift of emphasis – at least in how they sell themselves in public –  recognising a little more that their job is not to promote the Bank’s policies, but to ensure that the Governor is doing his job.  The explicit final sentence is the sort of thing one should expect, from time to time, from the Board, but which has been notably absent over the previous fifteen years of reports.  It is a welcome step forward and thus –  credit where it is due – I’d give them a (bare) pass mark this year.

Under the amending bill currently before Parliament the Board’s powers are to be beefed-up further, as regards the new Monetary Policy Committee.  I regard that as quite inappropriate: the Board members have no relevant expertise, and no legitimacy in their role determining who will set macroeconomic policy for New Zealand.  But the bigger questions are still to be addressed in the second stage review of the Reserve Bank Act, and so no doubt the Board needs to be seen on its best behaviour, at least looking as if it is adding some small amount of value.

But the institutional incentives, and resourcing (lack of it) mean that any improvements are unlikely to be durable or amount to much, even if individual board members were well-intentioned.

Thus, welcome as the small improvements in this year’s report are, I remain of the view that the Board in its current form should be dis-established,  If, as I would favour, the Bank is eventually split in two, there should be proper decisionmaking boards for each of the monetary policy and financial regulatory agencies.  That is how most Crown entities –  large and small, visible and not –  are governed.   Scrutiny and review mostly always will –  and probably should be –  done by those outside the Bank: the Treasury, MPs, financial markets participants, academics, and independent commentators, supported by pro-active practices and statutory provisions around the release of relevant documents .  In support of those efforts, I will continue to argue that the proposed independent fiscal monitoring agency should be broadened to include responsibility for providing independent monitoring and commentary on monetary policy and the Bank’s financial stability responsibilities.   Board members, sitting with management every month and with the Governor as a Board member, resourced by the Bank itself, simply can’t hope to be able to provide the level of detached scrutiny the public deserves of such a powerful public agency.

The government keeps film subsidies on

Michael Reddell Productivity

Subsidies and special deals for favoured firms/industries seem to have been becoming increasingly common in New Zealand.  There is Tiwai Point, the Sky City convention centre, the forestry industry, the export education industry and probably others I’ve forgotten.   There are the R&D tax credits the Prime Minister touts at every turn –  the only substantive item in her (very short) list of things the government is doing to reverse the atrocious productivity performance.

And then there is the film industry, into which many hundreds of millions of dollars have been poured over the last couple of decades.  There is an industry there, but one which official advice to the government makes clear has no prospect of viability without heavy subsidies.  That should be a good test as to whether there is any robust case for the subsidy.  Barring something like national defence considerations, any industry that has no credible prospect of ever standing on its own feet without subsidies or protection should be allowed to left to itself, probably to wither and die, but just possibly to transform itself.  And given the skewed incentives facing ministers, officials, and those in the industry – when such interventions are launched and when they are later evaluated – the standard of proof even for transitional assistance should be very high indeed.  It rarely is, of course.

This is another of those areas where there seems to be no discernible difference between National-led and Labour-led governments (and going by his comments in the last few days it isn’t even clear that the ACT Party is much different).

The current government showed some initial interest in looking to pull back on these taxpayer subsidies.  But, so we learned over the weekend, having had a look, they’ve backed away, and the party of workers, of the low income and disadvantaged, is going to keep right on with the big production subsidies.

The government has abandoned plans to rein in ballooning subsides for Hollywood, citing film industry opposition and the threat of lawsuits from the producers of James Cameron’s Avatar films.

But yesterday Parker, speaking from Australia, said following consultations with industry around the viability of their business – and thousands of accompanying jobs – without subsidies, and legal advice over a 2013 deal signed with Avatar producers, said cuts or changes to the subsidy scheme were now off the table.

“We’re not proposing to introduce a cap. We accept that the subsides are necessary, and we accept there’s a benefit to the country,” he said.

and

Parker said he wasn’t entirely dismissing the criticism by officials but said international rivals for film work were also offering subsidies.

“There’s something in that, but it’s also true that you have to balance that with whether you want to have a major industry. It’s a binary decision here – you either have this subsidy, or you don’t have an industry.”

“You’d be a foolish government to allow the film industry to fail, you might never get it back,” he said.

Now quite possibly they were on the hook over the Avatar deal, but that isn’t an argument for keeping the whole scheme in place (even if it might require a specific carve-out that respects the terms of a specific deal the previous government signed with the Avatar people).

Various official papers are linked to in those articles (notably these), which make it pretty clear that even MBIE’s hired-gun economic consultants were reluctant to attempt to put a number on the alleged economic benefit of the film subsidies, and other consultants hired to peer review the estimates the first ones eventually came up with were less than convinced by the results.  The Treasury estimated that net economic benefits were negative –  which is pretty much what one would expect when such large subsidies are required to keep the industry in business, and those funds have to coercively raised from other taxpayers.

But, notwithstanding all this, the Minister is convinced there is a benefit.  It would be nice to see his analysis.  Something for example about why, in a sector in which other countries’ taxpayers are wasting their money on subsidies, we should even be participating in such bidding wars.  And about why and how subsidising/protecting the film industry is so very different from all the other protected/subsidied industries we once had in New Zealand, that were in time forced to either stand on their own feet, or die.  And which, while they lasted, detracted from New Zealand’s overall economic performance, part of the decades-long story of declining relative productivity.

There are attempts at more sophisticated analysis in various reports MBIE and other agencies have commissioned (including this piece from last year by NZIER).  But I just had a quick look at a few summary indicators I could find.  Here, for example, is a line from a detailed table of New Zealand services exports (June years, $m)

2014 2015 2016 2017
Audiovisual and related services 504 490 397 280

Not exactly the trend enthusiasts would have been looking for.

The NZIER report has a chart of the estimated contribution of the screen industry to GDP over this decade.  In 2010 the estimate was 0.46% of GDP and in 2015 (the most recent year) 0.41 per cent of GDP.

In the annual SNZ release of screen industry data there is a table of earnings from screen industry jobs.  Here are those earnings shown relative to GDP.

screen industry jobs

On this measure, the relative share of the industry is a bit smaller than it was in 2005, despite all those subsidies.

There is also a similar length series of (a) the number of people employed, and (b) the number of jobs, which I’ve shown relative to the HLFS data on total employment.

screen E

And here is the same breakdown in respect of the number of jobs shown relative to the QES jobs filled data.

screen e 2

Employment isn’t everything –  there just might be stellar productivity growth going on.  But what NZIER could find on that front wasn’t particularly impressive –  and as they note, the numbers are shaky at best.  And in a sector of this sort, where New Zealand is a small part of a global industry, if there were really stellar productivity gains being achieved one might expect them to show up in a growing market shares, including (for example) rapidly rising exports and a rising share of total employment.  There is simply no sign of any of that.

Advocates seem reduced to some pretty feeble arguments not much different from “it feels good”.  In their taxpayer-funded report, NZIER devoted several pages to trying to make the claim that film subsidies are an effective part of “soft diplomacy”, exemplified apparently by cases like these

The German-aired Emilie Richards series (case study 6 over the page) is not well known in New Zealand, but in Germany it played a role in cross-cultural understanding. In the case of 800 Words (case study 7 overleaf), our Trans-Tasman relationship plays out in a drama series featuring New Zealanders and Australians together in daily life.

But as the discussion of these two cases unfolds it all seemed to reduce to not much more than “if you subsidise something, you will get –  and may even grow –  some firms and jobs that depend wholly on those subsidies”.  That is no sort of robust test.

Film subsidies look like a classic case in which, once established, it is extremely difficult to overcome the concentrated vested interests that want the subsidy to continue, even if there is no sign that New Zealanders as a whole are benefiting.  Perhaps there is a better class of cafe in Miramar as a result, perhaps ministers like hobnobbing with film industry people (although given the revelations of the MeToo movement it is hard to know why), and there are (of course) individual employees who would be adversely affected by the discontinuation of the subsidies –  as there is in any economic change, including the cyclical ups and downs in places like the construction industry.  But it isn’t a good basis for taking your money and mine to provide subsidies to the likes of Richard Taylor and Peter Jackson, talented as they (and their staff) may individually be.   Economic policy should be premised on considerations like economic efficiency, with any interventions benchmarked against credible performance data.  On that score, film subsidies were flawed from inception, and they clearly fail now.

Against values tests

Michael Reddell Immigration, NZ First, Uncategorized

New Zealand First’s conference over the weekend apparently supported some form of values test for immigrants.  It has been ACT Party policy too –  perhaps one of the few things the two parties (one strongly pro-immigration, one ostensibly a bit sceptical) actually agree on.

Such provisions aren’t unknown: Australia has its Australian Values Statement , a pretty watered-down thing that newcomers have to subscribe to. It isn’t clear that doing so makes any useful difference at all.    As I noted in an earlier post

My concerns are about two, perhaps opposing, risks.  The first is that any values statement becomes a lowest common denominator statement as to be totally meaningless.  The second is that the wording of any values statement –  if taken seriously –  would be hotly and continuously contested, as culture wars ebbed and flowed. 

Here, any serious suggestion of a values test just seems to offer another avenue for fighting the culture wars, in ways that would – among other things – end up delegitimising the deeply held views of many New Zealanders (native and non).   According to Newsroom’s account of the New Zealand First proposal

The bill would legally mandate new migrants and refugees to respect sexual equality, “all legal sexual preferences”, religious rights, and that alcohol was a legal substance that could not be campaigned against.

I certainly don’t respect “all legal sexual preferences”, let alone the acting out of those “preferences”.   And, on the other hand, the public health academics at Otago seem to lament that alcohol is legal.  More generally, for 100 years or so –  ending only 30 years ago –  we used to have a referendum every three years at which one of the options was Prohibition.   Kate Sheppard and the WCTU campaigned for women’s suffrage partly as a means to the desired end of Prohibition.     It is a long time ago now, but I suspect I probably voted for prohibition myself, and my (New Zealand born) father was a leading figure in the Temperance Alliance, which campaigned for it.    And what of “sexual equality”?  Who knows precisely what it is meant to mean here –  or in the Australian Values Statement –  but perhaps it means faithful Catholics would be banned from migrating to New Zealand because they don’t believe a woman can (from the nature of things) serve as a priest?    I don’t suppose that is what NZ First will mean, but some Green MPs might think that sort of restriction was rather appealing.

And does anyone suppose that if such a values test was established in New Zealand it wouldn’t include something about the Treaty of Waitangi, and something rather heavily loaded towards an interpretation that would have been unrecognisable 50 years ago.  Perhaps migrants would be required to undertake to “respect” the Treaty, whatever that means, or something that went even beyond that.   Or that if a values test was imposed by the current government it wouldn’t be full of rhetoric about the environment, climate change, and other left-wing priorities.

I dealt with this in an earlier post when, a couple of years ago, ACT was championing its proposed values test.

And where would it stop?  I had a quick look this morning at statements I could find in which each of the three largest political parties describe their values.  There was some overlap (and the particular Labour Party document I found had three of four pages of text, while the Greens and National Party had quite short lists), but there were quite a few substantial differences.  Which is what one might expect: a significant part of political debate is the contest of ideas and values, particularly in an era of cultural transition (eg secularization, in which culture and religion are no longer intrinsically interwoven).

I might find the references to loyalty to the sovereign, and limited government, in the National Party’s list appealing.    Many other New Zealanders wouldn’t.   “Respect the planet” might be something central to a Green view on things, but to me the concept of respecting an inanimate object just seems weird.  And even though there was serious uncertainty about the consequences of doing so, I’m glad our ancestors took decisive action to confront Hitler, rather than “take the path of caution”.

As far as I can see, none of the values statement (yet) talk of the rights of the unborn, or transgender rights to bathrooms –  to take just a couple of issues that have convulsed American debate.

Perhaps we might get agreement on process issues –  parliamentary sovereignty, a universal franchise, the rule of law etc –  but even on process it might be thin pickings.  There are probably plenty of supporters here of moving to a written constitution, and others who still hanker for a return to FPP.  In the end, is there genuine common ground on very much at all, other perhaps than that change should occur non-violently?  We can all agree that individuals do and should have rights, and probably all agree that in some circumstances the needs/interests of the “community” override those individual rights.  But where that boundary is, and how it should shift, is the intrinsic stuff of politics.  We can’t agree among ourselves, so what is there for immigrants to sign up to, other than today’s (temporary) shifting majority.  I was amused, for example, to read the Prime Minister’s [John Key] rewriting of history, in answering the values question, noting that for him it included “understanding that New Zealand’s always been a tolerant society”.   Really?  To name just one low-key example, our treatment of conscientious objectors during the two World Wars meets no reasonable definition of “tolerant”.

And yet the people who call for migrants to sign values statements do capture a fair point.  When large numbers of people are allowed by our governments to come and live in New Zealand they have the potential to change our society.  People are not just bloodless economic units –  dessicated calculating machines.  They bring their own attitudes and values, and while the new arrivals are likely to be changed by living here so –  if the numbers are large enough – is our society.  One need only think of European migration to New Zealand over the last 200 years –  we their descendants may be changed by living here rather than in, say, the United Kingdom, but the similarities with modern Britain are probably greater than those with pre-1840 Maori society.  The point is not that modern New Zealand is better or worse for those migrants (and their values/attitudes/technologies), but that the fact of change is inescapable and largely irreversible.  Seeking that sort of change is itself a political act.

Which is one of a number of reasons why I’m skeptical that –  even if there were material economic benefits to residents of the recipient countries – large scale immigration programmes are normally a legitimate role of government at all.  We’ll always have some immigration.  New Zealanders travel, and some will meet and marry foreigners.  Often enough the new couple will want to settle here.  And our humanitarian impulses will, rightly, drive us to take some refugees.  But in neither case –  both on generally quite a small scale – do we grant permission to reside here with a goal of changing our society.

But once we get into large scale immigration programme, governments are in the culture change business, actively or passively, often without even realizing it. In terms of the domestic culture wars, and ongoing debates, the ability to attract more people like one side or another skews the playing field.  Instead of working out our differences, and debating change, within the existing community of New Zealanders, we tilt the playing field one way or the other. I might be comfortable with a large influx of mid-western evangelicals, while most Wellingtonians might prefer liberal Swedes.  I might be happy with strongly Anglican Ugandans or Kenyans, while many would prefer secular French.   In the specific New Zealand context, few migrants have any strong reason to feel a commitment to the Treaty of Waitangi, and for those New Zealanders for whom that is an important issue, any large scale immigration skews the game against (that representation) of Maori interests

It is far easier to resolve disputes, and find an ongoing place for each other, among communities with shared memories, experiences and commitments.  Families do it better than countries.  Countries do it better than the world.  Globalists might not like to acknowledge that, but it doesn’t change the reality.  Families don’t usually resolve their differences –  sometimes painful lasting differences –   by injecting new members into the family.

It is one of the reasons why I’m opposed to large scale immigration programmes at all.  They allow governments to attempt to skew the playing field one way or other, rather than letting the inevitable cultural/values conflict play out, and be sorted out,  by New Zealanders themselves, as New Zealanders.  Perhaps it is a little different when the immigration largely involves people with similar backgrounds (culture/religion) to those of people already in the recipient country.   One might argue that was the case in New Zealand for a long time, although even then one could only do so by ignoring the position of Maori in New Zealand.

I also dealt with some of this stuff in a post on the culture/identity aspects of last year’s New Zealand Initiative report on immigration.

So long as we vote our culture out of existence the Initiative apparently has no problem.  Process appears to trump substance.  For me, I wouldn’t have wanted a million Afrikaners in the 1980s, even if they were only going to vote for an apartheid system, not breaking the law to do so.  I wouldn’t have wanted a million white US Southerners in the 1960s, even if they were only going to vote for an apartheid system, and not break the law to do so.  And there are plenty of other obvious examples elsewhere –  not necessarily about people bringing an agenda, but bringing a culture and a set of cultural preferences that are different than those that have prevailed here (not even necessarily antithetical, but perhaps orthogonal, or just not that well-aligned).

When governments facilitate the inward migration of large numbers of people –  as ours is every year –  they are changing the local culture in the process.  Now, cultures and sense of national identity are not fixed and immutable things, but cultures also embed the things that the people of that country have come to value and which have produced value.  Those people (“natives”) typically aren’t seeking change for its own sake: the culture is in some sense the code “how we do things here”, that built what people value about the society in which they live.  Whether it is comfortable or not to say so, in the last few centuries, Anglo cultures have tended to be among the most stable, prosperous and free.  So it is far from obvious why should embrace change so enthusiastically, or why we would want to adopt the Initiative’s stance, and only want to exclude those whose views and actions are “antithetical” to our own, or who might want to topple our society illegally.

Perhaps if there were really substantial economic gains to New Zealanders from bringing the huge numbers of non-citizens to live in New Zealand it might be different. At very least, we might face the choice –  give up on some of our culture and sense of national identity in exchange for the economic gains.  In some respects, that was the choice Maori faced when the Europeans came –  a clearly more economically productive set of institutions etc, but on the other hand the progressive marginalisation of their own culture. ….

There is also a degree of naivete about the Initiative’s take on culture and/or religion (and the two overlap to a considerable extent).  Back in one of the earlier quotes, the Initiative argued that it was fine with people of whatever belief coming, and

Within New Zealand, people are free to pursue their beliefs, be they spiritual or corporeal, provided these do not impose on other people’s pursuit of the same.

They don’t seem to recognise that most people hold to beliefs that they think should influence how society is organised.  Even libertarians do. This is particularly obvious in Islam, which has never had a very strong distinction between ‘state’ and “church’, but it is no less true of Christianity.  Both are evangelistic religions, proclaiming what they believe to be true – and seeing truth as an absolute concept.  Both can, and have, survived at times and in places as minority faiths, but neither has ever been content to believe that its truths are just for its people, and not for export. I’m not so sure it is really much different either for today’s “social justice warriors”, or for libertarians –  whose proposed rule is, essentially, that we should all just leave each other alone (even though this has never been, and never seems likely to be, how human beings have chosen to organise themselves).

I’m not convinced that stable democratic societies can survive that long without a common culture and/or common religion (the two aren’t the same, but they overlap considerably, and necessarily).  It is hard to know.  We don’t have a long track record of democratic states –  a few hundred years at most (even if one doesn’t use universal suffrage as the standard), and then only for a handful of countries.

…..

Democracy involves agreeing to live by a set of common rules, agreed by some sort of majoritarian process.  In almost any state, those rules include procedures for handling those least able to support themselves (whether it was Old Testament gleaning rules, the Poor Law, or the modern welfare system).  In a democracy, the willingness to help and support others is likely to be limited, to a considerable extent, to those with whom one feels a sense of shared identity.  The boundaries aren’t absolute, but revealed preference –  and introspection –  suggests that almost all of us are willing to do much more for our own families, and then perhaps for friends or members of other close communities of interest (neighbourhoods, church groups etc), and then for others in one’s own country, and only then for citizens of the world.  Is it a desirable model? I’m not sure. But it is human one, one that seems fairly ineradicable at a practical level.   Speaking personally, I don’t feel a strong sense of obligation to support someone down on their luck just because they became a New Zealander yesterday.  And I don’t feel a strong sense of obligation to support someone who won’t work to support themselves.  But I’m much more willing to vote my taxes to support those people than I am to support those down on their luck in Birmingham or Bangalore.  It is partly in that sense that “being a New Zealander” matters.  Mostly, humans will sacrifice for those with whom they sense a shared identity –  and generally that isn’t just the Initiative’s line about a shared belief in equality before the law, free speech etc etc (important to me as those things are).

Of course, what unites and divides a “country” or community changes over time.  In the wake of the Reformation, divisions between Protestants and Catholics were sufficiently important to each to make it practically impossible for both groups to co-exist for long in any numbers in the same territory/polity.  And, sure, multi-national multi-faith empires have existed for prolonged periods –  the Ottomans and Habsburgs were two examples – but not as democracies. Prudent repression can maintain stability for a long time.  But it isn’t the sort of regime that Anglo countries (and many others) have wanted to live under.

But the New Zealand Initiative report doesn’t seem to take seriously any of these issues, not even to rebut them.  They take too lightly what it means to maintain a stable democratic society, or even to preserve the interests and values of those who had already formed a commuity here.    I don’t want stoning for adultery, even if it was adopted by democratic preference.  And I don’t want a political system as flawed as Italy’s, even if evolved by law and practice.   We have something very good in New Zealand, and we should nurture and cherish it.  It mightn’t be –  it isn’t –  perfect, but it is ours, and has evolved through our own choices and beliefs.  For me, as a Christian, I’m not even sure how hospitable the country/community any longer is to my sorts of beliefs – the prevalent “religion” here is now secularism, with all its beliefs and priorities and taboos – but we should deal with those challenges as New Zealanders – not having politicians and bureaucrats imposing their preferences on future population composition/structure.

Values tests simply aren’t any sort of sensible answer, and particularly not in western societies  whose “values” and “religion” are not remotely stable or settled.   Perhaps it would work in Saudi Arabia.  Perhaps it even could have worked in many places in the 19th century.   And if such tests were seriously adopted in a society like New Zealand they would probably end up being used most against the sorts of people who now call for them.  Our culture’s heritage once included Test Acts, and I hope we resist the growing pressure to establish some modern form of them.  We can’t avoid the cultural conflicts within our own society, but we can give ourselves space to work them through as New Zealanders, people with some sort of shared commitment to this place and its people, that few newcomers –  wherever they are from, whatever their values, whatever their religion – are likely to share.

 

What is the Reserve Bank’s monetary policy?

Michael Reddell Adrian Orr, Monetary policy, Uncategorized

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?

Fiscal councils and state-funding of parties

Michael Reddell Fiscal policy

I’ve been engrossed in the Kavanaugh hearings, so just something short today.

A few weeks ago the government released a consultative document prepared by The Treasury on the possibility of establishing an independent fiscal institution.   There is quite a lot of useful background information in the document, although what is lacking at this stage is a clear specific proposal.

The creation of such an institution was part of the Labour-Greens budget responsibility pact announced before the election.  Broadly speaking, I thought it had the makings of a step in the right direction, but whether it would be so or not would depend greatly on the specifics of how the institution was set up, what it was made responsible for, and (to a considerable extent) the early key appointees.

I was generally in favour of a small institution that could provide some independent analysis and commentary on fiscal policy, fiscal rules, and so on.  Many OECD countries have such institutions.  I’d go a little further and suggest that in a New Zealand context such a body could be made more useful, and with a bit more critical mass, if the responsibilities were broadened to include independent analysis and commentary on other aspects of macroeconomic policy, notably monetary policy and financial system regulation.

My unease was the about the push, initiated by the Green Party, for the independent fiscal institution to take on a taxpayer-funded role of costing political parties’ proposed policies and promises.    That aspect appears quite prominently in the consultative document.  I remain unconvinced that there is a gap in the market.   I’m also unconvinced that a small body would be able to maintain a critical mass of the sort of detailed expertise required to credibly cost and evaluate policies proposed by political parties, across the entire spectrum of policy, on the off chance that one particular party might want some, perhaps quite detailed, policy evaluated.  And I’m also uneasy about the policy and political (not necessarily partisan ones) biases of the sort of bureaucrats who would inhabit such agencies (check out past Treasury advice around capital gains taxes for example), and the creation of any sort of expectation that these people should be charged with costing and evaluating party promises.

But there is also an issue of mindsets.  Technocrats put a great deal of focus on precise costings and details, but elections are rarely about those details, and it isn’t obvious that they should be.  Elections are contests of ideology, personality, competence or otherwise, and only at the margins are precise numbers likely to be particularly important.  That is even more so in an MMP environment, where campaign promises and policies are no more than opening bids, and governments typically have to be cobbled together –  and policy details haggled over –  after the votes are in.    Sometimes parties find it in their interests to hire expert advisers to evaluate or cost their policies, and the political and commentary process evaluates and challenges what they produce in response.  Other times parties don’t.  People make their choices, and it isn’t clear they put that much weight on specific costings, no matter who they are done by.  Politics is a competitive and adversarial process, and I’m not sure there is much role for taxpayer-funded technocrats.

The idea of a policy costings unit looks like some mix of (a) trying to intrude technocrats into the process, and more concerningly (b), a backdoor route to have the state fund political parties.   Resources that would be spent by the costings unit, at the request of an individual political party, would be resources that party would not have to find for itself.  if that isn’t backdoor partial state funding of political parties –  potentially on quite a large scale –  I’m not sure what is.

Among the interesting charts in the report is this one, drawing on OECD databases.

fisc council chart

It is a very useful chart, outlining what various independent fiscal agencies do. But what I found most interesting was the eight countries to the right of the chart where the fiscal institution does policy costings, and the countries that aren’t in that grouping.

Every one of the countries where the fiscal entity does policy costing of some sort (in the US case, not for political parties in the run-up to a campaign, but the US system is very different overall) is that all of them are large by our standards.  Even the Netherlands has more than three times our population and Australia has five times our population (and more than that multiple of our GDP).  Some of those countries have quite large staffs for their fiscal institutions –  and they can afford it.

By contrast, not one of the small OECD countries with an independent fiscal institution is described by The Treasury as doing policy costings for political parties.  That seems pretty telling, and is unlikely –  across a variety of different political systems –  to be just a matter of chance.

The consultative document doesn’t give us a sense of resource requirements, but there aren’t likely to be big economies of scale in this game.  A Council of, say, 3 and perhaps 10 staff could do the fiscal (and macro) monitoring.  That looks to be the sort of scale quite common in the rest of the OECD.  Making a serious job of policy costing looks as though it could take multiples of that level of resources.   For what?

I might come back to the document if/when I make a submission next month, but in the meantime I’d urge a rethink, and encourage opposition parties not to fall for the siren song of more resources potentially becoming available to them.

More on Orr

Michael Reddell Adrian Orr, Reserve Bank, Uncategorized

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.

Shame on our MPs

Michael Reddell China

There are some things I write about here that I really don’t care that much about.

But this isn’t one of them.

Yesterday at the start of Parliament’s sitting day, the prayer was read in Chinese by Labour MP, Raymond Huo.   This was apparently in recognition of the PRC-government sponsored Chinese language week.

There are three “official” languages in New Zealand: English, Maori, and sign language.  Chinese is not one of those languages, so why is it being used as an official part of parliamentary proceeedings in this country?

There are, of course, migrants from the PRC (and other Chinese-speaking countries/territories), as there are migrants from many other countries.  But when they come to New Zealand, and participate (as they should) in our political processes, they should do so speaking one of our languages.  As a migrant you might, to some extent hold on to your birth culture, but you made a choice to come to New Zealand, and part of that choice should be to adopt New Zealand ways and laws.   We are not some PRC colony.

I noted that Chinese language week is a PRC-government sponsored event.  The patron is Her Excellency, the PRC’s ambassador in New Zealand.   Among the trustees are Raymond Huo himself, the president of the New Zealand China Friendship Society, well-known for its close associations with the regime, the chair of the Victoria University (PRC-funded) Confucius Institute (and a senior consultant to the PRC government around Confucius Institutes) and the chief executive of the local branch of one of the Chinese banks.   (On this occasion, former PRC intelligence offical Jian Yang  – who misrepresented his past to get into New Zealand – is only an honorary adviser.)   And who do we find among the “sponsors” and “partners”?  Listed first in Hanban, the PRC government agency behind that network of Confucius Institutes around the world.   In the same top-tier is one of the Chinese banks (recalling that all Chinese corporates are seen, by the Chinese government, as arms of the PRC party/state).  Just behind, are the New Zealand government propaganda arms –  the China Council (from whom never a sceptical word is heard) and the Asia New Zealand Foundation –  the individual Confucius Institutes, the Wellington City Council (wasting my rates again) and various businesses and universities that want to keep on side with Beijing.

This is, overwhelmingly, a PRC promoted and sponsored body/event.  Any serious observer would recognise that, and the propaganda win involved in allowing the parliamentary prayer to be said by Huo, in Chinese.   No wonder Huo could talk of a record number of people watching Parliament TV from abroad (assuming there is any data to support such a claim).    Could one imagine a member being invited to open the day’s session of the PRC legislature with a prayer in English?   Silly me.  Legislature, in the PRC.  Ritual rubber-stamp more like.  Prayer?  Why, it is an avowedly atheistic regime, uneasy about anything or anyone that claims a higher allegiance than the Party.

Being a fairly open-minded place, where our leaders are largely heedless –  and careless –  of our heritage, it might have been one thing if Chinese language week had had as joint patrons (evil as her regime is) the PRC Ambassador and the Taiwanese government’s representative in New Zealand.    Or if the key figures were not political at all.  Or if the ethnic Chinese MP reading the prayer had a track record of standing up, and speaking out, against the evils of the totalitarian regime that brutally rules the land of his birth.  Or had originally from another Chinese-speaking country.

But, of course, none of these things held.    What do we know of Raymond Huo, senior Labour backbencher (presumably hoping for higher office before too long) who – remarkably (or perhaps not given the carelessness of our MPs) – chairs the Justice select committee in Parliament.  A man who has never once that I’m aware of, in his years in Parliament, uttered a single word critical of the PRC regime.  A man who openly defends the Chinese conquest of Tibet, and the brutal suppression of the people and their identity.   And here is what Anne-Marie Brady wrote about him in her Magic Weapons paper last year.

Even more so than Yang Jian, who until the recent controversy, was not often quoted in the New Zealand non-Chinese language media, the Labour Party’s ethnic Chinese MP, Raymond Huo霍建强 works very publicly with China’s united front organizations in New Zealand and promotes their policies in English and Chinese. Huo was a Member of of Parliament from 2008 to 2014, then returned to Parliament again in 2017 when a list position became vacant. In 2009, at a meeting organized by the Peaceful Reunification of China Association of New Zealand to celebrate Tibetan Serf Liberation Day, Huo said that as a “person from China” (中国人) he would promote China’s Tibet policies to the New Zealand Parliament.

Huo works very closely with the PRC representatives in New Zealand. In 2014, at a meeting to discuss promotion of New Zealand’s Chinese Language Week (led by Huo and Johanna Coughlan) Huo said that “Advisors from Chinese communities will be duly appointed with close consultation with the Chinese diplomats and community leaders.” Huo also has close contacts with the Zhi Gong Party 致公党 (one of the eight minor parties under the control of the United Front Work Department). The Zhi Gong Party is a united front link to liaise with overseas Chinese communities, as demonstrated in a meeting between Zhi Gong Party leaders and Huo to promote the New Zealand OBOR Foundation and Think Tank.

It was Huo who made the decision to translate Labour’s 2017 election campaign slogan “Let’s do it” into a quote from Xi Jinping (撸起袖子加油干, which literally means “roll up your sleeves and work hard”). Huo told journalists at the Labour campaign launch that the Chinese translation “auspiciously equates to a New Year’s message from President Xi Jinping encouraging China to ‘roll its sleeves up’.”   However, inauspiciously, in colloquial Chinese, Xi’s phrase can also be read as “roll up your sleeves and f..k hard” and the verb (撸) has connotations of masturbation.  Xi’s catchphrase has been widely satirized in Chinese social media.  Nonetheless, the phrase is now the politically correct slogan for promoting OBOR, both in China and abroad. The use of Xi’s political catchphrase in the Labour campaign, indicates how tone deaf Huo and those in the Chinese community he works with are to how the phrase would be received in the New Zealand political environment. In 2014, when asked about the issue of Chinese political influence in New Zealand, Huo told RNZ National, “Generally the Chinese community is excited about the prospect of China having more influence in New Zealand” and added, “many Chinese community members told him a powerful China meant a backer, either psychologically or in the real sense.”

and

During his successful campaign for the Auckland mayoralty, in 2016, former Labour leader and MP, Phil Goff received $366,115 from a charity auction and dinner for the Chinese community. The event was organized by Labour MP Raymond Huo. Tables sold for $1680 each. Because it was a charity auction Goff was not required to state who had given him donations, but one item hit the headlines. A signed copy of the Selected Works of Xi Jinping was sold to a bidder from China for $150,000.  A participant at the fundraiser said the reason why so many people attended and had bid strongly for items was because they believed Goff would be the next mayor.

and

In June 2017, at the Langley Hotel in Auckland, the State Council Overseas Chinese Affairs Office hosted an update meeting to discuss the integration of the overseas Chinese media with the domestic Chinese media. In attendance was Li Guohong, Vice Director of the Propaganda Department of the State Council Overseas Chinese Affairs Office, and other senior CCP media management officials, representatives of the ethnic Chinese media in New Zealand, representatives of ethnic Chinese community groups, and Labour MP Raymond Huo.  Update meetings (通气会) are one of the main ways the CCP relays instructions to the domestic Chinese media, in order to avoid a paper trail. Party directives are accorded a higher status than national law.

There is no sign at all of Huo putting any distance between himself and one of most repressive totalitarian regimes on the planet.  If anything, he only seems to want to hug the regime, and Xi Jinping, closer.  No wonder former diplomat and now lobbyist Charles Finny told a TVNZ Q&A interviewer last year that he was always very careful what he said in front of Huo.

And since this was a prayer being said, what about the religious dimensions?  Parliament’s prayer is an odd sort of beast, made odder by the current Speaker who rewrote the prayer to remove any distinctive Christian aspects, while keeping it distinctively monotheistic (references to Almighty God –  and not to localised tree gods or other minor deities).  As a Christian, I’d be happy enough (would probably prefer) Parliament dropped the prayer altogether: even if hypocrisy is the tribute vice pays to virtue, I’d rather MPs just recognised that the dominant “religion” of New Zealand (and every society has one, defined broadly) isn’t theistic at all.

But, for now, Parliament is opened each day with a monotheistic prayer, some vague nodding reference to our heritage, but vague enough that the small numbers of Muslims and Jews in New Zealand can probably nod along.

And what is the status of religion in the People’s Republic of China?   The Communist Party, which runs the state, is avowedly atheistic.  Religous believers, of whatever stripe, aren’t allowed to join the Party, as a matter of ideological commitment.    And both the Party and state are threatened by any sense of higher loyalties, not just theistic ones –  witness the extreme measures they’ve taken to suppress Falun Gong.   And what of theistic religions?    In the case of Islam, consider the extreme repression now in place in Xinjiang province, where some estimates suggest more than a million people may be in concentration and indoctrination “camps” (prisons), the surveillance state is taken to extremes, kids are taken from imprisoned parents, declared orphans, and then retrained to forget the identity, or even the existence, of their parents.   No New Zealand public figure –  no minister, no MP, and certainly not Raymond Huo (former countrymen of these victims) –  has spoken up, or spoken out, against that almost unbelievable persecution.     What you don’t speak up about –  when you in a position to be heard – is what you tolerate, what you really don’t care much about at all.  And yet Raymond Huo has the cheek to accept the offer to utter the prayer to this monotheistic Almighty God.

What of Christians?   They’ve had an uneasy relationship with the PRC over recent decades.   There are tame churches, in the Three-Self Patriotic Movement (Protestant) and a parallel with Catholics.  In many respects, they are orthodox, and yet they allow themselves to be placed under the thumb of the party-State (as for example, much of the Lutheran church in Germany did during the Nazi era).  But those churches who won’t bend the knee to the party-State are subject to increasing persecution in the Xi Jinping era, and attempts to suborn them and their leaders.  One large independent church in Beijing recently closed –  went to operating in small groups and by podcasts –  after the authorities insisted on the right place surveillance cameras in their buildings.  In response to growing repression and threats more than 100 pastors recently signed a declaration ending this way (emphasis added)

Christians are obligated to respect the authorities, to pray fervently for their benefit, and to pray earnestly for Chinese society. For the sake of the gospel, we are willing to suffer all external losses brought about by unfair law enforcement. Out of a love for our fellow citizens, we are willing to give up all of our earthly rights. 

For this reason, we believe and are obligated to teach all believers that all true churches in China that belong to Christ must hold to the principle of the separation of church and state and must proclaim Christ as the sole head of the church. We declare that in matters of external conduct, churches are willing to accept lawful oversight by civil administration or other government departments as other social organizations do. But under no circumstances will we lead our churches to join a religious organization controlled by the government, to register with the religious administration department, or to accept any kind of affiliation. We also will not accept any “ban” or “fine” imposed on our churches due to our faith. For the sake of the gospel, we are prepared to bear all losses—even the loss of our freedom and our lives. 

The situation has got consistently worse under Xi Jinping – who Raymond Huo holds close –  who is reported to regard churches as “severe national security threats”.

And yet Raymond Huo is invited by the Speaker of our Parliament –  presumably with the acquiescence of other party leaders, including the Prime Minister and the Leader of Opposition – to utter the daily prayer to the monotheistic Almighty God?   It is shameful.

But also telling.  After all, Simon Bridges last year signed up to the idea of a “fusion of civilisations” with this evil totalitarian regime.  Party presidents, Haworth and Goodfellow, head up to Beijing and sing the praises of the party/State and of Xi Jinping himself.

And just the other day, the chief executive of the Ministry of Foreign Affairs and Trade  –  about to become head of the PM’s department, and so we can presume was assuredly on-message –  gave a rare published speech.     In it he articulated New Zealand foreign policy, including among his ten basic principles this one

Second, be deliberate in supporting New Zealand’s values, speaking out in defence of them when required, even where that might put us at odds with others.

In fact, he quoted the Prime Minister from a speech earlier in the year

“In this uncertain world, where long accepted positions have been met with fresh challenge – our response lies in the approach that, with rare exceptions, we have always taken. Speaking up for what we believe in, standing up when our values are challenged and working tirelessly to refurbish rules and build architecture, and to draw in partners with shared views.

And noted

I can say with confidence that all of the Governments for which I have worked would hold these things to be true. 

In which case, I guess we must be able to deduce the real values of our leaders –  ministers past and present, and MPs –  but what they do and don’t say.    After all, they speak up for what they believe in, or so we are told?

When our Parliament invites a CCP-affiliated MP, who champions the interests of the atheistic PRC regime, and has his own party campaign under a Xi Jinping slogan, to open the day’s parliamentary sitting in prayer, in Chinese it seems unlikely that any of them care much about anything other than trade deals for big corporates and their donors, and none of them has the slightest regard for our own heritage, our own values, or for the freedom (including to worship, or not) of Christians, Muslims, and others in China.   There are, so we are told, Christian MPs in our Parliament.  But apparently not even a single one of them was willing to speak up, or speak out.

I don’t suppose New Zealand ranks very high among the issues that concern Beijing, but it must have been a good day in the relevant corners of Beijing officialdom yesterday –  bonuses for the Ambassador perhaps –  as they looked at the useful idiots masquerading as leaders in the New Zealand Parliament.

As a matter of urgency, we need someone –  some party –  to stand up for taking back our country, for asserting the values, traditions, and liberties of its people, the self-respect that (among other things) was presumably part of what attracted some ethnic Chinese to move here in the first place.  As for the present leadership, heedless, careless, and useless……selling out their country (mostly not for personal enrichment) whether by their indifference or their active involvement.

Yes, it will have been a good day in Beijing.  If the butchers ever take time to chuckle, yesterday might have been one of those days.

 

 

 

 

Orr among the forest gods

Michael Reddell Adrian Orr, Reserve Bank, Uncategorized

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?

Not much business investment

Michael Reddell New Zealand economic performance, R&D

Yesterday’s post was prompted by looking at the export and import data in last week’s GDP release.   Today’s is prompted by looking at the investment data.

The latest quarterly data wasn’t that interesting in itself –  business investment fell a bit, but from quarter to quarter there is quite a bit of noise, and not much can be read into a single quarter’s data.

But here is a longer view on a proxy for business investment spending as a share of GDP (total gross fixed capital formation less residential investment less government investment spending), using the annual data back to the year to March 1972. The latest quarterly observation is almost exactly the same level as the final (annual) observation on the chart.

bus investment sept 18

Years into the recovery, after several years of very rapid population growth, business investment as a share of GDP has crept back up to levels that are only higher than seen in past recessions.  And by international (OECD) standards, business investment as a share of GDP has been low in New Zealand for decades.  It is consistent with the story numerous analysts have highlighted over the years: one of the proximate symptoms of our long-term economic underperformance is that firms haven’t found it worthwhile to invest more heavily here.   The last few years look as if they simply reinforce that story.

(And that isn’t, of course, because we have too many houses for our people.  If anything, we have too few, so when people –  like the Minister of Finance –  talk of shifting investment from housing to other things, while not changing anything about population growth, it is meaningless or worse.)

That first chart, which I’ve shown previously, is the flow –  each year’s new investment as a share of total GDP that year.  But this chart uses the stock figures: SNZ’s net capital stock (total less residential less government) relative to GDP.  That takes account of depreciation, and also of the changing growth rate of the population.

bus cap stock

The business capital stock (as estimated by SNZ) hasn’t been growing relative to GDP for over 40 years.  Over most of the last decade that ratio has been shrinking (and although these data are available only to March 2017, it seems unlikely anything in the last 18 months will materially alter the picture).  Businesses –  as a whole – simply haven’t found it attractive to invest and grow here.

The government is very keen on promoting R&D spending, rushing to put in place new and bigger subsidies without much evidence of having thought much about why it might not be attractive to profit-maximising firms to spend more here.

R&D is included in both the annual new investment spending shown in the first chart above and in the net capital stock data shown in the second chart.   SNZ don’t provide a breakdown between government and private components, but for what it is worth I found this chart interesting.

R&D capex

If anything, R&D spending seems to have been holding up quite a bit better than overall business investment and the business capital stock.  Which tends to reinforce my doubts about why more taxpayer money should be thrown at this type of spending.  Overall R&D spending might be quite low by advanced country standards, but so is business investment more generally, and so is foreign trade.  My hypothesis is that all three things are related, and that there is no obvious reason (and no analysis the government has advanced) suggesting that the root cause of the problem is insufficient subsidies for R&D spending.

On a completely different note, tomorrow I’ll take a lot at the latest from the Reserve Bank: Adrian Orr and the tree gods.