Inquiry suggests lower wages and taxpayers taking on firm risk

I have read over the opposition report into manufacturing, and there is so much geniunely wrong in it that it deserves a significant post – one I will hopefully have the chance to (at least partially) do this week.  Note, I don’t disagree with absolutely everything in it, and I do congratulate them for the idea of getting together an inquiry and sorting policy – I think that is neat.  But there are trade-offs, and this report acts like there are none.

As a result, I thought I should probably translate what their report actually suggests in title of this post though.  This is not a blueprint for higher wages and “better jobs”.  This is a blue print for:

  1. Cutting the real purchasing power of households,
  2. Getting the government (therefore the taxpayer) to take on risk for businesses
  3. Therefore, subsidising an industry that the rest of the world is subsidising because of mystical “spillovers” we think may occur – ignoring the fact that having firms currently focus on their comparative advantage is making NZ into a very wealthy country …

This is our “left wing” parties talking – essentially about NZ Inc.  What happened to actually thinking about poverty and equity, issues that I know I might actually vote for them about if they ever bothered to be actual left wing parties, instead of an accidental vested interest group for firms.

Update:  Brennan McDonald discusses here.  I like the focus on specific biases between economists and (what I would term) folk economists.  IMO, economists need to be clear on their communication around these issues when discussing policy debates – as they are the principles that tend to “defy common-sense” for folk economists the burden of proof falls on us 😉 .  Also Groping to Bethleham discusses this here and here.

  • The report has provided some fun during exam period. The sad thing is that the median voter buys this stuff hook, line and sinker. We have a bias towards stuff over services, even if services are where our comparative advantage lies.
    In terms of successful exporters – they exist and they’re making new markets for themselves. The manufacturers who are hurt by the status quo are the ones who think in terms of “cost plus profit margin”.
    The discussion around hedging is a bit silly. They wouldn’t complain about the cost of insurance for a factory fire, and know full well that banks offer longer term currency hedging options in exchange for a higher margin – which makes perfect sense!

    • Probably the most amazingly missed part in all of this is the “time dimension”. Is it short-run volatility that is the problem (in which case I would be a touch suspicious about firm level management) or is it a “long-run” misalignment issue … which has nothing to do with anything they’ve talked about here.

      How can we talk about any of this stuff without a clear time dimension, it is incoherent 😛

  • Blair

    Given that David Shearer did a world tour talking to some top left-of-centre economists in 2012, it’s depressing this was the result.

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  • stay tech

    Great post.Thank you very much .