Will Taylor

Teacher Crisis: Scraping the bottom of the barrel

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Interesting piece on stuff today about the teacher crisis currently happening in primary schools. Apparently it has gotten so bad that they are considering hiring teachers who don’t have adequate English language skills. A survey of 79 schools showed that three quarters of the shortlisted candidates were ranked as either poor or very poor. I didn’t realise that it was this bad.

Hiring primary school teachers who can’t speak adequate English is outrageous. It’s very common at university to have economics and finance lecturers who can’t communicate properly in English (attracting the best staff is a problem in the tertiary sector too given that we don’t have discipline specific salaries to reflect the high paying jobs economics and finance phds can get, see a great paper by Professor Glenn Boyle on the evidence) and I must say it’s a terrible learning environment. The subtleties of the English language often mean that by wording a question slightly differently it has a completely different meaning. Expecting a third year university student to decipher the actual question is one thing, our brains are fully developed by then. But when you have kids at primary school whose brains are still developing not being able to understand their teacher is another.
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Will Taylor

Student Loans: The good the bad and the Ugly

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National announced yesterday that it is going to keep interest free student loans. As someone with a student loan I love the scheme and the free money it gives me. When I put my economist hat I think that it is terrible policy since it provides terrible incentives to for students to borrow. I personally didn’t have a student loan until they became interest free at which point I borrowed as much money as I possibly could.

Not only are National not avoiding electoral suicide by alienating students, they have also said they will provide a 10% bonus on early payments of more than $500 to help combat the fact that students have no incentive to pay back their loan while they are still in New Zealand (0% nominal rate=negative real rate due to inflation, i.e. your debt shrinks over time, isn’t that cool?).

Now this sounds nice on the face of it, but David Farrar has put on economist hat and worked out that while this improved incentives for repayment, it exasperates the perverse incentives regarding borrowing. DPF notes that an optimal strategy for a student would be to borrow as much as you could and then pay it off at the end of the year giving you a nice 10% return for your effort. However the problem is actually worse than that. Read more

Matt Nolan

Interest free student loans and compulsory schooling: Is there a better way?

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Recently the two main political parties in New Zealand have announced schemes that aim to, in some ways, help up-skill 16 and 17 years olds. At the same time, National has come out stating that it will leave student loans interest free, but provide a reward for repayments (leading to much debate).

Although these may seem like separate issues, when I look at the economy the issues of youth employment/skills, education, and unemployment/employment are intensely linked. As a result any policy that the parties take up on one of these issues must take into account how it influences these other sections of society.

In this post my aim is to put forward my current belief of what an ideal policy would look like for these three sectors – that’s right, I said policy not policies. Personally I think that all three are so closely linked that we have to use the same or very similar instruments in order to provide the right sort of outcome. Now, this analysis will be unashamedly normative, I’m going to be packing it with value judgments. I will try to make these judgments clear so you can either i) attack me on them, ii) work out where my objective logic may have gone wrong, separate of the value judgments.

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Matt Nolan

The curse of the forecast

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This article came out at 9.30am stating that the New Zealand dollar was going to test $US0.80 again.

Even with an positive surprise in the merchandise trade figures, this is what happened:

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Macro-man notices a similar trend with Economist magazine covers.

Update:  If anyone wonders why the dollar is falling, it is because of concerns in the US (we are a carry trade currency, so if something goes wrong in the US people sell our currency and buy US dollars – crazy huh) about some bond issuers.

Will Taylor

Kiwisaver and Income Equality: Must not have checked my mailbox…..

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David Farrar links to a Herald article on a report that came out of Waikato University’s management school saying that Kiwisaver is going to increase income inequality.

Their policy analysis that rich people will restructure their activities to get tax benefits in a way that poor people cannot seams relatively sensible. I don’t claim to know anything about the the tax implications of Kiwisaver so I’m willing to trust them on that. This isn’t the only way that rich people can take advantage of the tax system in NZ. Last time I checked to top personal tax rate in NZ was much higher than the company tax rate, and businesses get gst back which gives people the incentive to structure as much under their company as they can. Incentives are king, this kind of behavior is nothing new.

What does bother me about this article is that they conclude that Kiwisaver has not “inspired new saving but rather a “reshuffling” of existing savings” based upon 598 completed mail surveys they sent out. Read more

Matt Nolan

January 08 OCR review: OCR on hold at 8.25%

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As everyone expected the OCR is unchanged at 8.25%.  The statement was decidedly neutral, stating that everything is happening inline with their December forecasts, however uncertainty has increased.  As they did not state whether it is downside or upside risk they are concerned about (we cannot just presume it is downside risk), any change in their hawkish stance in December relies on our belief of the risk preference of the Bank.

If the RBNZ is risk averse, then they are less likely to lift rates in the future, if they are risk neutral they are just as likely to lift rates in the future.

It is important to note that they said they will be monitoring commodity prices – this implies that the ANZ commodity price index will be especially important over the coming months.