Now that’s over

With that election thing finally out of our hair, we can focus on the fact that things aren’t looking good out there.

Krugman puts up a nice illustration of how this really is the fault of the Euro. (It would help if creditors and debtors just accepted that they need to take a bit of a bath)

And markets are now picking rates in NZ to be lower in a year’s time.  This is the extent of the positive news – again we are relying on European policy makers … I just don’t know if they deserve any trust anymore.

But, there is one thing I’ll give us here in NZ – a collapse of the Euro-zone isn’t necessarily going to be as bad for New Zealand as continuing uncertainty in financial markets.  The key is what happens to growth in Asia (given that it accounts for so much more of our trade now), and for now our dollar is pointing to a reasonable outlook for commodity prices.  But if there is anything we remember from September 2008 its that this can turn …

If New Zealand was like this all the time …

It would be completely unlivable.  Seriously, it feels like 90% of people out there support a party – and determine whether a policy is “good” or “bad” solely on the basis that it is their party doing it.  Is this election really any different to watching your local sports derby?

I mean, for the love of god partial asset sales appear to be the main theme coming into this election – one of the most incredibly marginal and unimportant issues I have ever laid eyes on.  With no impact on competition (because it is minority stakes), and with little impact on the final cost of servicing spending either way (given that the lost dividends are only slightly lower than the expected interest payments on borrowing) this is a virtual non-issue.  And yet, every single person I talk too cares STRONGLY one way or the other – for no reason that they can actually articulate.

Do people not think that “tribal politics” is inherently stupid – we should be debating what trade-offs we are willing to make as a society, and what we really feel is fair.  Not trying to make it so “our boys” are in so we have “won” …

New Zealand, I am disappoint.

A minimum income can replace a minimum wage

That is the suggestion here from Gareth Morgan.

I agree of course, I have said the same thing here before – both when raising what my policy platform would be and discussing the minimum wage more recently.

It is fine to disagree with this and say “only people who are part of the labour market are part of society” – but in that case lets make that transparent and build our policy platforms from there.  I don’t agree that platform (hence why I would push for a minimum income) – but the current state where we don’t face issues of income adequacy OR fairness simply leads to inconsistent and unfair policy.

Why the minimum wage trade-off is important for the left and right

When it comes to conclusions about the broad labour market that are accepted world wide, the idea that a higher minimum wage leads to lower levels of total employment is one of the most accepted.

That is why it was interesting to see Patrick Gower suggest that Treasury didn’t believe this was the case – and use this as justification to push for a $15 minimum wage.  However, I would argue that we need to be more careful interpreting the evidence he has put forward – and that it is in the interest of both the left and the right (and of course society) to not significantly increase the minimum wage.

Update:  Eric Crampton at Offsetting behaviour raises good points here and here.  Interestingly he calls me too kind – I’m not used to that, from others I usually hear arrogant, narrowminded, or ignorant 😉

Update 2:  In the Dom, they are calling the opinion in a letter a “Treasury report”.  Seriously, is our media this bad all the time, or do they just save it for elections …

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A fair price for asset sales

Matt has posted about asset sales and believes that they’re a good idea as long as the government gets a fair price. He seems to be saying that the government’s decision to sell assets should be the same as a private company’s. Only the government isn’t a private company, so the costs and benefits to be weighed are a little different.

To begin with, once the government has committed to asset sales it is politically committed to selling. That puts it at a disadvantage relative to potential buyers; one that they will be all to happy to take advantage of, as Rob Salmond has recently discussed. The fact is that government asset sales are a political manoeuvre, not a commercial decision, and that puts the government in a weak bargaining position with whoever offers to buy the assets. That’s one of the reasons why assets always seem to be sold at a low price, relative to their commercial worth.

So, if governments struggle to extract a good price for their assets, why sell them at all? The late Roger Kerr had an excellent series on his blog in which he detailed some of those reasons. The main two are that

  • Asset ownership is risky and the costs of that risk fall largely on those who depend on the government for their livelihood; and,
  • Privately owned companies tend to be run more efficiently and profitably

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Thinking straight on asset sales

As far as I  can tell, National only has one policy at the moment [Update:  When I wrote this on Wednesday morning this felt like the case – now I see they are talking about the ETS … I will get to that another time].  That is to sell down part of the governments stake in assets, and use that money to build schools.

Now, I hope that since they have no other policies they don’t intend to really do anything during the next three years.  For the sake of it, I’ll assume this is the case.

On the note of their policy, I have to say I have no real problem with asset sales as long as:

  1. The country has a good legal system (CHECK)
  2. The country has clear and consistent competition policy (CHECK)
  3. The asset is sold for at least fair value.

So, if they are going to do this we have to make sure there is a fair price.  Excellent. [Update:  Here is a good piece from Rob Salmond on why the price issue can be a difficult one]

Now, if this was the whole policy we could end there – but it isn’t.  They then want to invest this money into schools.

Is this really the best use of the funds?  Is the rate of return on new schools high enough to justify the sale of assets?  If New Zealand had an undersupply of school space then this could make sense to me – but I was under the impression that our schooling infrastructure was actually pretty good.  As a result, why the hell are the funds being invested there?


So when looking at National’s policy, we have to ask:

  1. Are they going to get a fair price
  2. Are they investing the funds in the right way.

Hopefully they can achieve the first criterion, but currently it doesn’t seem that they are really willing to meet the second criterion.  If National is just going to waste the funds that come in from assets sales I would prefer them to just not do it.