Problems with Experts

New Zealand Books, Winter 2012, p.9.
Keywords: Macroeconomics & Money; Regulation & Taxation;
The New Zealand Economy: An Introduction by Ralph Lattimore & Shamubeel Eaqub (AUP) 170pp. $34.99. ISBN: 978-1-869404-89-5
The New Zealand Tax System: New Zealand Taxes in Comparative Perspective by Rob Salmond (Institute of Policy Studies) 129pp. $30.00. ISBN: 978-1-877347-45-0
To begin with the final paragraph of Rob Salmond’s book:
The educational role of experts is important in a democracy because it is the public, via their elected representatives, who are charged with making the final decisions over the experts’ suggestions. The principle of informed consent requires that experts actively inform laypeople before seeking their consent. The tax system ultimately belongs to the citizens, not to the experts. And in order to make that ownership real, experts have a continuing responsibility to make balanced, high quality information about the tax system not just publicly available knowledge; but rather public knowledge. (Original’s italics)
Alas experts play a small role in the New Zealand economic debate. which is dominated by politicians – in and out of parliament – with agendas, and journalists willing to uncritically pass them on. The result is nicely illustrated by a couple of Salmond’s book’s conclusions:
– Some people have argued that New Zealand’s consumption tax is smaller than average … that conclusion is misleading at best …
– Some have suggested that New Zealand’s top income tax was unusually and punishingly high under the previous government. That is incorrect .. In fact, it is the new top tax rate that is unusual for OECD countries. It is unusually low. … the data also reveal the New Zealand is an unusually lighter taxer of both corporate dividends and capital gains …
They are derived from a chapter-by-chapter analysis of various taxes, mainly involving a comparison with the rates of those in other OECD countries. It is a tedious exercise, but the conclusion seems to be robust: our tax system does not redistribute spending power as much as most other OECD countries. That is not a complete story, because there are redistributional effects from social security and other government spending (especially on education and health). Probably we dont redistribute well through them either. The implications are – I am stretching the book’s findings, but consistent with other research – that New Zealand has long abandoned any pretence of using the government to create an egalitarian society.
How did the egalitarian objective slip away? Answering this is more than the scope of the study, but the opening chapters provide some insights by tracing the workings of the 2025 Taskforce (chaired by Don Brash) and the TWG (Tax Working Group chaired by Professor Bob Buckle).
Salmond is dismissive of the Brash Taskforce. Aside from the few who consulted its background papers ‘the 2025 Taskforce process added nothing to [the public’s] understanding of how tax in New Zealand compares to tax elsewhere. Given the Taskforce’s first major recommendation was to reform the tax system in dramatic ways, this absence was unhelpful’.
He is more positive about the TWG which ‘represents a big step in a good direction for policy making in New Zealand’ because, despite being expert, if had a more open consultative approach. Even so he thinks there is room for improvement. ‘The TWG drew its membership from a narrow class of people (mainly academic economists, tax lawyers and accountants all of whom were men).’ Polite company does not mention that all had incomes in excess of $100,000 a year, which may be why they paid so little attention to the impact of their recommendations on those on lower incomes. Let me instead point out that there was an absence of rural specialists too, and blow-me-down, there was not much TWG sympathy for rural New Zealand’s concerns either.
That is the problem with experts. They may be more knowledgeable, but they (especially the ones the government consults) are in privileged positions in society. The growing inequality and social heterogeneity means that they are increasingly disconnected from the general masses; the result is divisive recommendations.
Salmond has an interesting investigation of the reportage of both groups in the New Zealand Herald using the website (he is a New Zealander based at the University of Michigan). He seems to have missed that most of the reportage appears on the business pages, which are not well read by even the majority of Herald readers. What the opening paragraph omits is the need for mediators connecting the experts and the public (although Salmond rightly draws attention to the excellence of Brian Fallows, economics editor of the Herald).
The New Zealand Economy: An Introduction is probably a book more for mediators (columnists and journalists) than the general public even though the authors state it is ‘aimed at those who want a pocket guide to the New Zealand economy’ – at 210 mm by 150 mm one needs a large pocket. (They say it is also ‘designed as an introductory text …for school and university students’.)
I happen to be writing this review on a day in which the economic headline is ‘NZ current account deficit worsens’, so let’s test how the book might be used to understand that story. The index tells me there are three pages starting at p.27 and a further four pages starting at p.79. The initial section opens with
‘The current account balance measures many of the transactions across New Zealand’s borders. It captures the value of imports and exports, and also some money flows. Conceptually, the current account measures the difference between a nation’s savings and its investments. If investment exceeds savings, then we have to borrow as a nation from overseas.’
Totally meaningful to an economist (I promise not to get more complicated), but the majority of the readers of this review (who are only a selection of an educated elite who read New Zealand Books) will struggle with the paragraph, even had they read the book’s previous pages, for not all the concepts used here are well-defined earlier either. This is not a book for general readers.
But suppose you are a journalist who has been asked to write the story up (perhaps just after coming off the front page (horrible) story of a ‘mother jailed 7 years for repeatedly abusing child’). You have done a course in economics some years ago – it’s why the chief reporter gave you the story – but it was probably badly taught. Hopefully the section would prompt some memories from the course, and alert you to some of the snags in the notions the news item is using. A few pages on there is a useful graph of the current account deficit as a proportion of GDP (i.e. aggregate market production) and you might observe that the level (4.3 percent of GDP) is not too different from a typical level for the last third of a century (although it bobbles around from year to year). At this point you will be prepared to go to an expert, although whether you can translate her or him right (or pick their agenda) is another matter.
Fortunately today’s news story is not about the International Investment Position (for you, dear reader, let’s call it how much we owe overseas), which has been preoccupying us in recent years (it influences our international credit rating, the ease with which we can borrow offshore, and interest rates in New Zealand). My hunt through the index proved fruitless. It truns out there is a paragraph and chart (p.79) but too dense for non-specialists to make sense of.
So despite its claim, we have to think of the book as having a different – and less modest – objective. It sets out an account of the course and performance of the New Zealand economy since about 1980 written around the notion of New Zealand as a small, open (i.e. engaged with the international economy) and relatively rich economy.
Now economists scrap like Kilkenny cats over the narrative and analysis of an economy – the profession is built around vigorous robust debate – and it is incumbent upon me to disagree with authors Ralph Lattimore and Shamubeel Eaqub of the NZIER. But let’s leave that to another venue. In truth, the core of the profession agrees on about 90 percent of all things (no one takes the slightest interest when we agree) – my guess is we would mainly disagree about omissions. The account the two authors provide is certainly within that core, so the reader who persists – they probably would have had to have done some preliminary study of economics – will find the book is a useful introduction, as promised.
There are two appendices: on technology by Gary Hawke which will disappoint the general readers and on ‘City and Globalisation is Auckland Special?’ by Philip McCann. The introduction describes this as the ‘new topic of economic geography’. Ooops, it is about 30 years old, so established that Paul Krugman was awarded the 2008 Nobel memorial prize in economics for his work on it. It may be new to New Zealand and it may be new to readers; McCann provides a useful non-technical introduction.