There was an excellent speech by Alan Bollard discussing why New Zealand’s GDP is difficult to compare to other countries – and if we measured things the same way we would not look as poor at all. This is a great point, and is well made.
However, I’m not dealing with that point here – I’m dealing with the fact that I think its an inappropriate topic to be covered by the governor of the Reserve Bank given our current institutional framework. Here is my thinking:
- When it comes to the idea of comparing international statistics, first responsibility for making sure things are transparent goes to Statistics New Zealand – the group that focuses on these issues, and creating the statistics we use.
- If there is a feeling they cannot cover the role of educator for some reason (lack of resources, institutional impediment), it falls on Treasury to make sure the point is clear – or to do research that makes the point. Treasury is the primary adviser to government descriptive economic issues and should be covering it.
- Should Treasury and Statistics New Zealand both ignore the issue – then we have to hope for a strong academic/researcher community to look at these issues and make a point of it when they come up in public.
- The Reserve Bank involves a team of top economists focusing independently on important issues of monetary policy and financial stability. Their success depends heavily on communications, and making the scope of what they can do and control clear.
In this environment, having the head of the Reserve Bank discuss the issue both undermines the roles of Statistics New Zealand and Treasury as researchers and educators, and in turn confuses the public about what the Reserve Bank does and what it can control.
The Bank needs to ensure it is constantly drilling home the message of what it can and can’t do – not making arbitrary statements on the structure of the economy, or issues related directly related to fiscal or government policy (like closing the gap with Australia).
I’m not going to make any friends saying this, but although the speech was excellent putting these types of issues in public through the central bank, rather than having a strong Treasury department performing this role, is a recipe for institutional failure. You want to know why the public gets confused about what monetary policy is – because of things like this.
Note: I am not saying that this is the fault of the Bank or the governor per see – someone needs to be saying this message, and we need to ask why Treasury or Statistics NZ aren’t resourced to do it. For me, that is a significant issue.