Geoff Simmons, Politics and “career suicide for an economist”

Disclaimer:  I used to work in the same space as Geoff, and I know him as a guy who is genuine, wants to improve social outcomes, is a mad good communicator, and who works hard on the issues.  But none of this would prevent me from disagreeing with him if I did (such as my comments on food here and here and here and here), so I swear there is no bias involved 😉

In a cool interview over at interest.co.nz Geoff Simmons outlines what is going on with the TOP party, which he has just become leader of.  For the sake of clarity I think he’ll be an excellent leader for this party.  What I want to concentrate on is this quote though:

How can the public know I am serious about the long haul? When Cortez took on the Aztecs, he trashed his ships to make sure his men had no choice but to fight with everything they had. The reason I bring up that story is what I am doing right now is pretty much career suicide for an economist. There’s no going back.

Haha, this is good – I like the nifty description of a commitment mechanism.  But I’d like to ask a couple of questions about it.

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Top 10: What has been happening in NZ?

I have spent most of the last four years trapped in a small space, pouring over legislation and microdata to figure out details of the New Zealand tax-transfer system prior to 2014 – with short breaks to deliver some lectures at Victoria University.  I learnt a lot, but I had no chance to keep up with the New Zealand economy.

So now I’m back, and I have questions.  This is what I bring up in my Top 10 over at interest.co.nz that went up this weekend.

So what are the key issues I’m struggling with:

  1. Why is the participation rate so high – this helps to describe it, but why? [Related facts:  It has been full time work climbing, with increasing participation by those over 65 AND rising female participation]
  2. Why has the NIIP liability position improved to the degree it has – this helps to describe it, but why?
  3. How are we seeing “late cycle” without input price pressures? [Note:  The RBNZ does not see this as late-cycle judging by this]
  4. The OCR looks low for “late cycle” – what is this due to?  I’m going to split this in two:  What part is due to real economy issues, and what part is due to changes in bank regulation/macroprudential policy?

Related questions – which are likely answered by the answers to the questions above are:

  1. Why is labour productivity so low?
  2. Why is the part-time employment as a percentage of employment so low?
  3. Why are house prices so high?
  4. Why is there no product price pressure – especially non-tradable prices?  This describes some – but why are non-tradables doing this now?
  5. Why is the terms of trade rising to the degree it is?

As you can tell reading this, I genuinely don’t know anything … but as someone who has a pretty clear view on macroeconomics and a good grasp on the NZ data and data history prior to 2014, I haven’t found any accessible answers to these questions easily.  So I am hoping you can help me here 😀

 

The Indicators Aotearoa public consultation

Statistics New Zealand is asking for public consultation on Indicators Aotearoa New Zealand, a consultation motivated here.

Now given my own writing on the usefulness of GDP and my concern about injustice rhetoric being used for consumption instead of facing issues that matter I would be expected to have an opinion.

Sure I do, it makes sense to ask people what outcomes they care about in order to determine what we measure and what prominence it has.  So this is very cool to see – and I’d be keen for everyone to get involved in saying what matters to them.  Let’s see what they say:

“These indicators will be designed to be independent and to paint an enduring picture of how New Zealand is tracking, and will help underpin robust decision-making for years to come,” says Ms MacPherson.

“But to shape the measures which will be included in Indicators Aotearoa New Zealand, we need your help.

“That’s why Stats NZ wants to hear from you about what you’d like to see represented in the set of indicators. You might want to see measures about the state of our health, our environment, our infrastructure, or our social connections.”

Where we have a picture we can model trade-offs, when we can discuss trade-offs between competing factors that people care about we can discuss policy.  This is useful as long as we don’t get lazy on the modelling trade-offs part of course 😉

They state that you can give a submission at the link above or email indicators@stats.govt.nz.  So why not give that a go.  I’ll be sure to think about the broad social issues that matter to me and send in my own submission at some point myself.  Neither of the links say how long we have to do this so we better be quick – quick but thoughtful of course 😉

Monopsony in the NZ labour market?

As part of catching up with what has been happening in New Zealand I am reading what I can find from New Zealand economists.  In doing so I wandered onto this piece by Shamubeel Eaqub of Sense Partners.

Firms are finding it hard to recruit, as the pool of qualified job seekers who are not already employed is so small. … (But) Wages haven’t risen in tandem. Wages have been increasing in some sectors like construction, but have been stagnant in others. … One explanation for this may be a lack of competition in a local labour market.

The increase is from a low level and evidence from the US on minimum wages suggest such increases don’t cost jobs, but improve the incomes for the working poor.

So there are two claims embedded in this that I want to think about a bit here: Competition through monopsony and the efficacy of a higher minimum wage in the NZ context.

Is there suggestive signs of monopsony in NZ’s labour market (Tl;dr is YES and NO), does this imply minimum wages could increase employment (Tl;dr is YES if monopsony holds), does this suggest higher minimum wages would increase, or at least not reduce, employment (Tl;dr is probably NO at current levels).  Although we will be going through a bit more than this in what has turned into a long post.  Let’s do this.

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An example of misusing data/GDP/aggregates

What a perfect chance to rant after describing thinking about GDP this morning!  The econ news gods love to provide.

Look, I didn’t really agree with the Business New Zealand piece on New Zealand not being a “low wage” economy either – although I’d like people to be a bit clearer with their definition before they call anything low wage – but what the hell is this sort of article by a “data scientist”. [Note: I like data science and data scientists.  This is not an example of that.]

Now I’m back I’m calling this sort of trash “economics reporting” out – if we are going to publish articles where we are giving an objective rundown of the data we have to know the data and know the research at a basic level.

If we want to state our values (eg there are have nots in New Zealand that we want to support more) we don’t need to do this, we should all be allowed to state what we think matters and doesn’t matter.  But abusing the data and misstating trade-offs isn’t doing that, it is straight lace lying mate – irrespective of whether we disagree with the values associated with the person we are disagreeing with.

Reading it half a dozen times I think I’ve worked out what he is attempting to say.  Real GDP in NZ is probably between 15% and 30% lower in New Zealand than Aussie.  After tax wages are about 32% lower according to a measure they aren’t going to cite, because Stuff.co.nz has no shame about what it does with data (Note: It is probably the OECD disposable income measures).  Therefore wages can go up by increasing the share of income going to labour and we don’t need productivity growth.  Ignore the logical incoherence of that conclusion for now, the very premise of it is flawed to hell.  Let me explain.

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Scope of blog posts – question everything

Proper posting starts next week but before we start I just want to outline the broad scope, but narrow method, of the posting that will occur here – and hopefully the critical comments of other people will follow the same idea when discussing these things.  Essentially let’s cover all sorts of social and economic issues based on two factors: questioning and understanding the context of the received wisdom that underlies them.  In this way, each post should start with an idea that some group accepts as true, and needs to both critique that but also understand the underlying concern or situation that led to that idea gaining traction.

Coming back to reading the news of the day I’m struck by how much “received wisdom” there is out there.  I know I used to complain about it and state that economists should be careful about how their simplifications could be taken as received wisdom, but to be honest I’d forgotten quite how extreme it is.

Now this may be all well and good but it isn’t how I like to think about economic and social issues.  Instead I like the idea that a good way to look at these questions is to be a bit of a child:

A good economist is like a petulant child.  They always ask why, never fully accept an answer, and rarely fully reject one.

All of us sitting here on our computers intend to be good economists, and this blog is a space where we can practice the art – asking ourselves whether the received wisdom we rely on to reach our conclusions about certain social and economic policies is really defensible.  But critique alone isn’t as useful as I used to think – we also need to ask why the received wisdom is accepted in order to understand where legitimate concerns regarding trade-offs exist.

I have noticed discussion of New Zealand’s “poor productivity performance” (among other things) here.

I have noticed the statement that people now are worse off than their parents (here and here).

I keep hearing that wages aren’t going up in New Zealand – a statement I find particularly surprisingly given that I have been sitting around in a dark room with the evidence of rising wages for several years.

Now each of these statements comes from something.  Productivity, the progress of generations, and wage growth are all short hand things that are used to define progress (assuming of course no trade-off) and a belief in their absence indicates that individuals in society are concerned about social and economic failure.

However, to a particular group each of these is a received wisdom that can be dropped in conversation.  The economist or policy analyst will use the first to signal to other economists that they know what productivity is.  The married couple in their 30s or 40s will use the second to talk to their parents over brunch about how they don’t understand how much harder it is for them than it was for the baby boomers.  The third is used by people the whole economy over to complain about how they should be paid more for the day they spend surfing facebook and commenting on stuff articles.

My cynicism aside, each of these pieces of received wisdom both includes true information in the context it was noted – and misleading information that is being used to support a set of beliefs for some group.

Take wage growth as an example.  During the Global Financial Crisis there was evidence wage growth was weak – in fact there are periods where wage growth will slow which demand explanation (including during 2017).  However, this is not evidence that wages are always and everywhere too low.  Real wages in New Zealand have grown persistently through time … if this is contentious to someone then don’t worry, this will be covered eventually.

Going forward lets evaluate some of these ideas on the blog.  We can try to figure out the context where they are useful – and the context where they are misapplied.  Uncomfortable statements for this wisdom such as “if lower productivity is a choice is it really bad” and “millennials in NZ are fundamentally wealthier in terms of goods and services than baby boomers were” can be placed alongside the nuggets of truth such as “lower productivity due to some group protecting themselves (poor competition) is a failure” and “many millennials are excluded from some things, such as access to the security of owning a house, that baby boomers weren’t”.

Received wisdom is there for a reason – and we should be keen to find out what people may be concerned about rather than ignoring it.  However, this does not mean that we should take received wisdom as given – since out of context it is often simply false statements used by a group to try to get something.

Lets do this.