Did an article on why we should leave the Reserve Bank Act alone in the Dom this week. Given I’m too lazy to put up new material this morning I will just link to it (on Rates Blog, on the Infometrics site).
Warping the Reserve Bank Act to focus on a multitude of different goals will not solve these underlying issues; it will just cloak the symptoms by damaging other sections of the economy. Although pretending to solve an issue may be beneficial for politicians, it is not the best way to run New Zealand economic policy.
Update: A bit of pointless filler – again because I’m not up to writing anything fresh today 😉
Just realised I was sort of implicitly agreeing with Sen’s capability approach. I didn’t write it with that in mind, but it was probably hanging in the back of my head.
Feel free to discuss – I promise to get back to real blogging some time in the next few weeks 😉
I had forgotten about this, but a while back CIS released a booklet with a few essays on “how to supersize NZ” (as in make the economy bigger, not supersize in the McDonalds sense). It was called Supersize New Zealand: A collection of essays on how to improve New Zealand’s public policy.
Of course I’m linking to it because I got to write one of the essays (with the editing help of some other blog authors – thanks Agnitio, Goonix, Rauparaha and CPW).
I wrote on how we shouldn’t forget productivity when looking at social welfare policies – as at the time we had a Labour government in that was determined there was no trade-off between efficiency and equity and therefore determined that we should focus on equity.
However, by the time it was release we had a National government who believe there is no trade-off between equity and efficiency and so we should focus on efficiency. They do this under the catch-cry of productivity, which lead me to write things like this.
There is no contridiction. Ultimately, I just want politicians to face the trade-offs associated with policies and wrote articles that, at the time, illustrated the costs they were missing.
I was raised as a microeconomist so I guess I have a bias, but all this discussion about our poor debt position being the fault of households makes me nervous.
It is easy to blame households, hell the RBNZ did that just today. As they point out, household savings is extremely low, and real consumption (the volume of consumption in 1995/96 prices) as a share of GDP has risen sharply in recent years. On Sunday Rod Oram did the same – blaming our debt position on households spending far too much.
However, I find that when economists start to agree we are usually wrong. Given that this argument doesn’t feel right to me in the first place I am being forced to disagree.
I have two “pieces of evidence” to suggest that households aren’t at fault here, and instead it is weird investment incentives and poor government policy that is likely to be at fault. These are:
- My good friend Ricardian equivalence,
- Nominal GDP shares.
Discussion on Rates Blog is here.
Both political parties are unwilling to face that, with respect to government policies, there is a fundamental trade-off between some social values (fairness, justice, etc) and the level of productive activity. This trade-off is one of the primary reasons for the existence of government – and yet neither of the political parties seem willing or able to recognise it.
As a result, next time we hear the government discuss the importance of productivity, or we hear some international body talk about the goal of productivity growth, let’s try not to forget that there is a trade-off – and let’s ask exactly what this trade-off is.