Will Taylor

A Strict Application of “Kiwi Made” Actually Hurts Our Exporters

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While I am all for supporting the domestic economy, I think that a strict interpretation of the requirements for a good to be labelled “Made in New Zealand” actually harms our exporters. People get upset when they find out that something that is “Made in New Zealand” is manufactured using inputs purchased from another country. Any attempt to put pressure on exporting firms to use entirely NZ inputs is detrimental given that we are a small open economy with a very volatile exchange rate. The argument I’m making has absolutely nothing to do with price or quality but instead centres on a corporate finance concept known as “Natural Hedging”. Put simply if you have a company that sells its output in a foreign currency, purchasing your inputs in that currency naturally hedges movements in the exchange rate.  A good example of this is Navman who appear to be doing fine because they purchase a lot of their inputs in US$

While I accept that a good should still in essence be New Zealand made, I  believe that when the firm is an exporter, they should outsource as much of their inputs as possible.

Matt Nolan

One hike too far

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So the RBNZ lifted rates. However, they said this is the end, no more hikes this year.

I’m can understand why Bollard wanted to lift now, Cullen threatened his manhood and Bollard had to show he had some balls. I still think this lift is unnecessary, house sales are easing and firm profit margins have recovered, easing inflationary pressure over the next few months. Furthermore, even in the June quarter when retail sales were red hot, core inflation showed signs of easing.

Bollard has said no more rate rises will happen, however I think he’s taken one more than he needed to. Remember, the OCR hits inflation with a lag, it takes 12 months for effective mortgage rates to peak, and some say the full effect of tightening can take 18 months to come into effect. 2008 looks like it will be a difficult year.

Matt Nolan

Broadband penetration

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Found this little gem on Marginal Revolution.  It says that the OECD methodology for measuring Broadband penetration is flawed, as it measures per capita instead of per household rates (so countries with larger households are penalized, since people living in the same house can just share a connection). 

Now the OECD methodology for pretty much everything is flawed, but it did get me thinking, we are 21st in their measure of broadband penetration, could this be because of their inappropriately defined boundaries on what defines broadband uptake.

The answer is sadly no.  Under the new measure NZ comes in 23rd, down two places.  To make matters worse, Australia jumps 3 places to 13th.  Damn Telecoms lack of penetration.

Matt Nolan

Dairy farmers and their bling

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So, it looks like the dairy farmer is doing well.  This raises an interesting quesiton.  Are dairy farmers doing well because of:

a) Government help

b) The fact that their milk is sold by a monopoly

c) Favourable world commodity prices

d) Some mix of all three (note you can give a zero probablity to one of the options when doing this)

I think its mainly c).  Now the real issue I’d like us to try and figure out, is whether the government provided a positive role in the current dairy boom.  Has the government provided some structural assistance that could not of been provided in the free market?

Personally I doubt it.  But if someone can make a convincing argument for it, that would be pretty cool 😉

Matt Nolan

People in the UK don’t want to pay more fuel tax

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And I’m not bloody surprised either.  They already pay a very significant fuel tax, one that I feel covers the externalities associated with their fuel consumption.  When you have an externality, the government should tax to the point where the marginal cost of consumption is equal to the social marginal cost of consumption, taxing anymore than that is government failure.

However, in New Zealand we should pay more fuel tax, and I know one guy that agrees with me

What do you think?  (bonus points for picking up the obvious economic inconsistencies in the above article, as it will give me the opportunity to say what I really think)

Matt Nolan

Monetary policy: Aussie vs NZ

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At least one Australian and one New Zealand commentator feel that the RBNZ is too focused on inflation. They use the example of the RBA, which seems to be controlling inflation without trying to strangle the life out of the economy.

Do people agree with this? Is our Reserve Bank an inflation zealot? Or does our Reserve Bank have a better idea of the long-term costs of inflation, and as a result, is more interested in stamping it out?

I’m not even sure that the situations are comparable, Australia’s growth rates and productivity rates have far outstripped ours, giving their Reserve Bank more leeway to control inflation. After all March non-tradable CPI inflation was only 3.5%pa in Australia, compared to 4.0%pa in New Zealand, indicating a significant difference in domestic price pressure.