Let’s be careful judging savers

Although my article might not give that impression at first glance – that is actually where I am in agreement with Bob Jones here.  However, I’m also saying that the RBNZ governor isn’t wrong about bringing up the “savings issue”, and it is fair for us to discuss where marketand government failures are … including in the way housing is treated by the tax system:

The point is that the complaints of economists are not the product of us assuming stupidity, or telling people they are immoral. They are the concerns of a group who believes that there may be some policy relevant issues – for example the peculiar ways that the New Zealand tax system treats housing as an asset – which are hurting New Zealanders.

Far from showing the Reserve Bank governor is out of touch, as Jones suggests, his willingness to discuss this issue illustrates that he realises how important it is for future generations of New Zealanders.

I also get concerned, as does Bob Jones, that the push towards “save more” is really a moral push to tell people what to do with their income.  However, when economists are talking about savings issuse they are saying that our persistent large current account deficits, with a range of other factors that seem unusual in New Zealand, provides a situation that we should analyse.  Analysing it has led economists to note a number of issues where there is a trade-off – a trade-off policy makers and the public feel the wrong choice has been made about.

Given this, people want to change policy settings.  I’m not jumping into this debate in of itself – but I would note that there is nothing wrong with asking the question, and merely saying “I’ve done pretty sweet on property in the past” doesn’t invalidate that.

  • Blair

    “[W]hen economists are talking about savings issues they are saying that our persistent large current account deficits, with a range of other factors that seem unusual in New Zealand, provides a situation that we should analyse”.

    It is interesting that Graeme Wheeler didn’t mention the current account in his recent speech on housing. Yet, if investment recovers to its pre-GFC trend in order to fund the rebuild of Christchurch and Auckland, the current account deficit will be 10%, assuming constant savings. This is getting into powder keg territory.

    • Hmmm, the current account deficit is currently elevated in part due to rebuild related imports – capital imports spiked sharply through the middle of last year as equipment was brought in here for the rebuild. So that is one thing to keep in mind.

      Also, the rebuild is essentially investment – it illustrates what is going on with the S-I imbalance pretty nicely. It also illustrates why a sudden jump in investment demand sort of forces the central bank to lift the OCR to keep inflation on track, which makes it a neat example.

      The key point here is for analysts, and journalists, to keep the principle of savings and investment in mind when looking at this – and to note that we need a clear idea of the market or government failure behind it, before we can really say much about the numbers!