Self interested story of the day?

So an investment bank comes to the conclusion in a report that too few New Zealand firms are listed, especially on New Zealand’s stock exchange.


Why do people take all this capital deepening rubbish seriously – we are a small open economy, with open access to financial markets.  As long as price signals are in place, and property rights are protected, people will invest in things given the incentives they face.  Trying to get people to invest, and invest in specific place, just for the sake of it is bad policy.

When the goal is to make sure that “NZ Inc” has the highest reading on the “GDP meter” as possible this might make some sense (I stress might) – but if we are actually interested in achieving the best outcome for society, I haven’t seen a good argument for capital deepening.  Yes, I’ve read papers on it – but I’ve always found that they didn’t cover the underlying concept of allocation and welfare in the context they should be covered.

2 replies
  1. Royal Albert Ross
    Royal Albert Ross says:

    Could you expand please, or point to anything else you have (or somebody likeminded) has written to do so?  I totally take your point about the self-interest of an investment banker saying such things, but do you not agree that

    “the importance of a sharemarket in an economy is easy to understate – it plays a really important role in growing businesses and helping businesses into new markets”? 

    • Matt Nolan
      Matt Nolan says:


      In order to justify additional capital deepening we require an externality – that needs to be proved.  When I say that I haven’t seen sufficient evidence that this has been shown that is essentially the way I’m thinking about things.

      A sharemarket is undeniably important insofar as it helps people who want to invest meet with people who can offer profitable investment opportunities – in many ways the banking system does the same thing.

      However, what is the justification for trying to “force” people to undertake additional investment through the sharemarket channel?  Unless we can identify an externality, or a tax wedge, the very idea doesn’t seem to make any sense to me – and if we can identify those things, we should deal with them directly instead of aiming for policies that “force savings” or “force investment through a specific vehicle”.

Comments are closed.