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 …

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.

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.

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 …

The evidence

There are two things put forward in the email that is linked to.

1. The paper by the department of labour discussing the increase in the youth minimum wage
2. An officials opinion that minimum wages haven’t lead to lower employment

The first point has been discussed here already – the paper showed that, when the minimum wage increased for that group, employment fell and kids stayed in school.  As a result the unemployment rate was unchanged.  This is far from an “aggregate labour market” type result – and stems from the specifics of the 16-17 labour market.

The second point was just an individuals opinion – not the opinion of Treasury.  I would gladly have a discussion about it with the person involved – but in terms of the email, this is just an off-hand comment not a solid piece of researched evidence.

In this context, the idea that there will be fewer jobs available due to a higher minimum wage is indeed still likely – in fact the author assumes that later on, and just points out that it will be through lower hiring rather than people getting fired.  I would like to point out here that this is still a number of people who get excluded from the labour market due to the minimum wage – so it is still a very bad thing.

Why minimum wages are the wrong tool for all

And this is the crux of the issue, the minimum wage is the wrong tool for assuming that people have a minimum standard of living.

By accepting the trade-off between employment and a minimum wage (which is true), we can recognise that setting a minimum wage so that people can live at a certain level does not help poverty – it just means that people who are lucky enough to get work (work that has been made artificially scarce by the high cost) can live comfortably, while those who are unemployed can’t.  This is a prime example of reducing equality of opportunity and creating injustice.

No, the only way to ensure that people have a minimum standard of living is to give people a minimum level of income.  Once that income level is set there is no need for a minimum wage – and the decision to work for an employer will not be based on desperation, but on the desire to better their living standards and their life.

The left and right will disagree on the level of the minimum income – but the existence of it, and removal of minimum wages, will be preferable to both.

The only time you would prefer to have a minimum wage and not a minimum income is when you believe that people who do not work do not deserve an income – but people who do work deserve at least a certain level of income.  But even if you do believe in the “deserving” and “undeserving” poor, just remember that the higher the minimum wage is, the more of the “deserving” poor will be destitute – that is the truth of the policy of lifting the minimum wage substantially.

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

The main objection to asset sales is usually not on financial grounds but equitable ones: selling the assets transfers the future revenues from the state to a small number of private citizens. Now, if the assets were sold at a fair price that would not be an issue, as Matt notes. However, not only are they likely to be sold below their real value, but the additional profits realised by a privately owned company certainly accrue to only the owners of the equity. On the one hand we might say that is fair because they have, through their good business sense/ruthlessness [delete as preferred], generated that increased value. If they have generated it and paid their taxes then what claim do taxpayers now have to it? On the other hand, some will say that those people should not profit from taking advantage of the Crown’s weak bargaining power. In the latter case, one could either opt to tax the returns or design an ingenious contract by which the Crown was fairly compensated for their weak bargaining power. The extent to which you think that is possible probably determines your support or opposition to the sale of state assets — other than ‘strategic assets’, whatever they may be.

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?

Conclusion

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.

For National he thinks:

the hero is Government. Government starts as dissolute spendthrift and becomes a mate helping spruce the place up. But that’s a political story. The economic underpinning is of People and Businesses who are good-hearted and creative, who are sufficient unto the task but held back.

And for Labour:

Labour is saying that wages — the price of labour — are wrong; they don’t reflect that actual contribution of workers to the economy. Labour is also saying that asset prices are wrong. Whatever price we get for state assets won’t fairly compensate for the lost dividends. … So, the prices of both capital and labour are wrong.

The fascinating thing about these stories is that it is National who paint the government as the ones who can clean up the mess, and Labour who paint the system as the problem. Aren’t we more used to seeing that the other way around, with more libertarian types complaining about the system and progressives calling for more government intervention to save the day? So is the discordance in Bill’s perception of the narrative, or in the roles of the parties?

I think he’s right about National: we’ve seen the rise of John Key-as-CEO, managing the economy, used as a common rhetorical device over the past few years. Painting the government as a hero who can free us from our bonds fits in well with that narrative. But it seems that, in Bill’s narrative of National’s policies, the people are infants who need guidance and assistance rather than budding John Galts who wish only to be unshackled from government management.

Matt has previously agreed with Bill’s analysis of Labour, too: they think prices are wrong and they want to ‘fix’ them somehow. The problem Labour seem to have is that their rhetoric is about marching in the street and anger at corporate fat cats. In contrast, their policy of tweaking GST and superannuation schemes while maintaining the status quo on government asset ownership will change things very little. Bill has avoided talking about the role of government in changing the system, probably because Labour’s policies say little about it.

The complaint is that Statistics New Zealand said that their trend measure of building activity was crawling up, at the same time there was a sharp seasonally adjusted drop in consents in September.  The reason for this was that August was “strong” (relative to recent history) – so even with the decline September was a stroke higher than we have been used to, and the real “trend” measure of activity they have (and have always talked about) did increase.

Look, this isn’t just a case of Phil Twyford not being able to understand data – I mean, that is part of it it seems, but that isn’t the whole issue.  I’ll even ignore that fact that Twyford seems to think political parties run the economy – a fallacy among politicians that gives them a sense of unwarranted self importance.  The most confusing issue for me here is that anyone would think this is the best use of scarce time on the campaign trail – you can arbitrarily attack Statistics New Zealand and get zero votes (as it is such a non-issue), or you can be a competent politician and go out to try and get votes by talking to the public and showing them that you are the best option in terms of meeting their interests.

If Labour was a real opposition party, their members would be doing the second.  Hopefully they will be by next election, so that I actually feel like I have a choice when that election comes along – a competent opposition is essential for democracy … just saying.

Thankfully economists have a lot of experience with forecasting, and the accompanying abuse when one gets it wrong. As Matt has written about many times previously, the main thing to remember is that forecasting isn’t about the numbers: it’s about the story. Your numbers, however good at the time, will always be overtaken by events and end up being wildly inaccurate. What’s important is the reasoning behind the numbers and how it stacks up. For example, the argument about accounting conventions that’s presently raging in the political blogs may or may not be good politics — that’s not my area of expertise — but it doesn’t seem to be adding to our understanding of either party’s policies. Whether borrowing to invest in the Super Fund adds to a particular measure of debt is fairly irrelevant and won’t change anyone’s views on the policy. What people care about is whether the government borrows to invest in it at all, and each party’s policy on that seems fairly well established.

Moreover, it would be a shame if this election campaign degenerated into a war of spreadsheets, when there’s little that the details of projected costings can tell us about the merits of a party’s policies. Goff and Key may have started down the road of acting as if they’re interviewing for the CE’s job but arguing over projected investment returns is taking things too far!

Too often investment in the energy sector, especially around low-carbon energy, is held up as a way to ‘create’ jobs for the economy. This article dispels the myth:

At the risk of being obvious: energy policy is not a jobs programme. Here are three reasons why politicians shouldn’t try to create jobs through energy policy: it’s ambiguous, it’s inefficient, and, most importantly, it’s undesirable.

In summary the author’s critiques are as follows:

1. What counts as a ‘green’ job, for example? Would that job have occurred anyway? Did the ‘creation’ of that job crowd-out another job?
2. The energy sector is typically capital intensive rather than labour intensive and hence efforts to ‘create’ jobs may be better directed elsewhere.
3. More important issues exist in energy, such as accessing cheap, sustainable energy and the security of energy supply – adding a further goal of ‘job-creation’ muddles this.

Given job-creation via energy seems such a hot topic throughout much of the world right now due to weak economic activity, elections forthcoming in the US and NZ and ongoing concern with carbon emissions and a need to ‘green’ the energy sector, it’s worth keeping in mind these criticisms.