Low productivity isn’t lazy

Good post on the Productivity Commission blog, Prod Blog.

When it comes to labour productivity, or productivity more generally many people in society assume that an economist saying “productivity is low” is the same as saying “people are lazy”.  But this is far from the case.  Lisa Meehan clears that up for us:

Poor labour productivity doesn’t mean that Kiwi workers are lazy.  Labour productivity measures how much output is produced per hour worked; it doesn’t tell us anything about how hard we’re working.  In fact, as we discuss in our paper, New Zealanders work long hours compared with the OECD average.  The problem is that despite these long hours, NZ has low GDP per capita – that is, the problem stems from poor labour productivity.

Put another way, ‘labour productivity’ is a convenient (and useful) metric to think keep tabs on our wider productivity performance.  But, by itself, the catch-all labour productivity measure tells us little about the performance of workers alone.

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LVR speed limits are here

RBNZ restrictions on high loan to value ratio (LVR) mortgages came into effect on 1 October 2013. They are already biting – with ASB pulling its high LVR approvals. By definition, the new rules will reduce high LVR borrowing growth, but not necessarily total borrowing (because banks are now incentivised to lend ‘traditional’ mortgages). The international evidence on impact on house prices is mixed at best and the RBNZ’s regulatory impact assessment is pretty up front about it.

Where I disagree

The purpose of the new rules is to reduce the amount of risk accumulating in the banking sector. The RBNZ’s aim should not be to reduce credit growth or house price growth per se, rather systemic risk arising from high risk debt that may have implications for financial stability, and in turn, economic stability. But it feels like the RBNZ is really targeting house prices.

The RBNZ should keep the financial stability tools as separate from monetary policy as possible. Focussing on risk in the financial system in a consistent manner would keep monetary policy independent/free of political interference. Politicians will be running interference with this policy – as we have already seen from National, Labour and Greens. This political interference should be a good reason to ask if the RBNZ should be doing both monetary policy and financial stability.

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“Why LVR’s were introduced”

Graeme Wheeler has written an op-ed on “Why Loan-to-Value Ratios were introduced“.  Good, communication is an important part of what a central bank needs to do – especially when introducing new things!

I’ll leave the comments on this to someone else, I’ll just note:


Benefits of events, before and after the fact

Team NZ sadly didn’t win the America’s Cup. It would have been a good party in Auckland if we had. Just like the RWC was.

With more than a little hubris, there were numerous media stories on the economic benefits of winning and hosting the America’s cup. Now it appears it was too early.

In response to one estimate that the benefit would be $500m, I was quoted as colourfully describing that:

[The economic benefits of hosting the event would be based on] over-hyped studies that are proven to be absolute b…….. after the fact.

For the record, following is what I sent to each media query on the economic benefits of the America’s Cup. Read more

Quote of the day: Hausman on tarot card reading … or ethics and economics

Today’s quote of the day stems from me starting to reread “Economic Analysis, Moral Philosophy, and Public Policy“.  Last time I went through this book it annoyed me, as it didn’t seem to be attacking a “fair” version of an economist – rather a caricature.

However, I have noticed this time, in the first chapter, Hausman admits that is what they are doing – and it is to make the basic ethic principles they want to discuss “clear” to other economists.  In other words this isn’t a book about criticising economists per se – more a basic description of some important moral principles to keep in mind when translating from theory to practice in economics and policy making, and decision making more generally.  I can deal with this, and should be able to read the book far less defensively.

On that note he says:
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