Claudia Goldin wins the 2023 Nobel economics laureateship

This entry was posted in Labour Studies, Political Economy & History, Portraits, Pundit on by .

She may have progressed our understanding of women in the economy but that has not resolved all the issues.

A woman who was once chief executive of New Zealand’s biggest company said ‘It is true that a large percentage of the [women’s pay] gap is unexplained and that’s where the issue comes about; could it be bias even if that’s unconscious bias? Regardless of how we’ve got a gap … the much more important thing is, what are we going to do about it?’

That is so characteristic of the way we tackle policy in New Zealand. We don’t worry about understanding a problem; we focus on solving it. We don’t even bother about trying to find out what is known about it. Just get on with the policy.

There is, in fact, an enormous amount of research on the different income patterns of men’s and women’s earnings – very little of it in New Zealand. (Some of the overseas research has been used in the better policy work in New Zealand.)

If this general neglect as been unacceptable, hopefully it cannot be justified any longer given the award of the Bank of Sweden’s economics prize in honour of Alfred Nobel to Claudia Goldin.

She was not awarded just for her work in women’s economics – which is, after all, also in men’s economics because they are interdependent. Goldin is a bloody good economist (as were the other two female Nobel laureates).

(It was repeatedly mentioned that she is the first women to have been awarded the economics prize on her own rather than jointly. The reason is that in about 1975 the award should have gone to Joan Robinson who made some major innovations in economic thinking. But one member of the selection panel had a snitch on her and vetoed the choice. Never underestimate the extent to which the eccentricities of a panel determine awards.)

Goldin’s many contributions have been mainly in (American) economic history, including on inequality. She was a student of Robert Fogel, the last economic historian laureate, who, like her, imaginatively investigated important questions – in his case, most notably the economics of American slavery – often finding data which no one else thought existed. But she also addresses contemporary issues.

She traced the pattern of American women’s employment over time. For the generation of women born between 1878 and 1897, a successful career typically required forgoing children and sometimes marriage. The choice women faced was ‘family or career’. For their granddaughters born between 1924 and 1943, it was ‘family then job’ for a college-educated woman: work after graduation, marry (soon), have children and drop out of the workforce, returning once her children were in school. But her prolonged absence from work meant she did not have the skills and experience necessary to thrive in the workplace. For Goldin’s last group, born after 1958, many women aspired to achieve ‘career and family’. The shift was aided by access to better contraception, which helped women delay marriage and childbearing and by more liberal social norms.

The research she did on the impact of contraception was with her personal and research partner Lawrence Katz, who is also a very good economist. Using an ingenious research strategy they found that the contraceptive pill gave women more control over decisions about children, enabling them to plan their career and develop their work skills, so the age of first birth increased.

Demographer Natalie Jackson identified an interesting New Zealand twist. Māori mothers have their children about five years earlier than Pakeha ones. What do the latter do in those five years? They add to their qualifications and their paid-work experience. They are much better placed when they return to paid work as the children grow up.

Despite these changes there remains a clear gender gap for these women, most notably with respect to pay. In a recent 2021 book, Career and Family: Women’s Century-Long Journey Toward Equity, Goldin argues that most women no longer suffer unequal pay nor is the gender pay gap driven primarily by women’s choice of occupation. She argues markets generously reward anyone, male or female, who is willing to hold down what she calls ‘greedy jobs’, those which demand long and unpredictable hours. Parents needing to be on-call at home in case a child falls ill and needs picking up from school, or needs cheering on at a concert or football match, cannot hold greedy jobs which require being available for last-minute demands from a client or boss. Typically, it is the mother who spends more time raising children; the gender pay gap tends to open up after a first child. Goldin says ‘Men forgo time with their family and women often forgo their career.’

Does it always have to be like this? I’ve had friends in which the parenting roles have reversed. But there is still the inequality, even if it does not appear as gender inequality. Goldin is optimistic that the ability to work at home will reduce the gap – it won’t eliminate it though.

She is not telling the full story. Some of my own research illustrates another dimension. Fifty years ago, I was interested in how non-market work affected the market economy. (This was well before the popular literature on the deficiencies of GDP as a measure of human activity. The long history of economists concerned about the problem before my work is rarely mentioned by the populists.)

I got blocked because there was no data. That led me to advocate an official time-use survey which Statistics New Zealand first implemented twenty-odd years ago. It is an extremely valuable resource although sadly few people have tried to exploit it. (Where are the Claudia Goldins when we need them?) My findings are reported in Not in Narrow Seas: The Economic History of Aotearoa New Zealand but here is a summary of some of them.

Time-use surveys ask individuals to keep diaries of what they did each hour. It turns out that on average men and women spend roughly the same amount of time on most things such as personal care (including sleeping) at 76 hours a week (out of 168 hours) and leisure (40 hours a week).

The big difference is in their working time balance. Both spend about 48 hours a week on such activities, but men’s paid labour force activity (including travelling to work) is 30 hours a week while women’s is 16 hours. (The male figure appears low because it includes the retired and students.) The remaining time is mainly work around the house; men do about half the amount women do.

So men and women work as long but men get paid for almost twice as many hours. Hence women have lower incomes from working, even if you adjust for age and qualifications.

Additionally they get paid less per hour. The reasons they get paid less are various. Goldin gives some, such as women having less work experience and being less into greedy jobs. What she does not pay much attention to is discrimination. I think that comes from her ‘Chicago School’ tendencies. (She is at Harvard University).

Neo-liberals argue that discrimination is insignificant, it’s the way the markets work. Others suggest that labour markets are fragmented and do not work as competitively as the neo-liberals assume. A particular issue arises if a single employer dominates a particular market. (The technical term is ‘monopsonist’.) They can screw down wages. (One of the pioneers exploring such non-competitive markets was Joan Robinson.)

We have had much legislation since 1973 to weaken the discrimination. The gap has diminished but it is still there. New Zealand’s most widespread monopsonist is the government. To give the Ardern-Hipkins Government some credit, it was reducing its monopsonistic discrimination. The consequence has been higher taxes with no real increase in services – just greater fairness.

Claudia Goldin would seem to give little weight to the last couple of paragraphs. Many economists would disagree. Even so they will celebrate her Noble laureateship. Her research has contributed markedly to the progression of the scientific part of economics even if some of her policy conclusions may be limited.

Even more, the award recognises an area where economists ought to be doing more work, rather than leaving non-economists to argue from ignorance.

Are Things Falling Apart?

This entry was posted in Political Economy & History, Pundit on by .

Coalition government reflects a nation’s diversity. Electoral arrangements show it.

               Things fall apart; the centre cannot hold;

               Mere anarchy is loosed upon the world,

               The blood-dimmed tide is loosed, and everywhere

               The ceremony of innocence is drowned;

               The best lack all conviction, while the worst

               Are full of passionate intensity.

                                           W. B. Yeats The Second Coming

The New Zealand Government is always a coalition of disparate interests. For its first 38 years – the first parliamentary election was in 1853 – there were no parties and the government was an unstable alliance of individuals. The 1872 Stafford Ministry lasted 31 days; the 1873 Fox Ministry lasted 36 days; the 1876 Atkinson Ministry lasted 12 days; the 1884 Stout-Vogel Ministry lasted another 12 days; followed by 6 days of the 1884 Atkinson Ministry. (Britain’s 2022 Liz Truss Ministry was 49 days from appointment to resignation – including 10 days of the national mourning period for Queen Elizabeth II.)

With the election of the Liberal Government 1891, New Zealand began party government. Even so, a number of Liberal MPs crossed the parliamentary floor to elect the Reform Government in 1912. In 1915-1919 there was a National Ministry of a coalition of Reform and Liberals. In 1930-1931 the Forbes Ministry was a minority government. His 1931-1935 ministry was a coalition between Reform and United (previously Liberals).

However, from 1935 to the arrival of MMP in 1996 there was single-party government. Since then there has been 18 years of coalition governments with the exception of the Ardern-Hipkins Government 2020-2023. All the coalitions since 1891 have been reasonably stable. Only the Shipley-Peters coalition of 1997-1998 had an untimely end.

Observe that there are broadly two kinds of coalitions. One involves more than one party having seats in Cabinet as occurred with National and New Zealand First in 1996-1998. More common has been minority single-party governments with other parties providing confidence and supply and Ministers outside Cabinet. (Between 2017 and 2020 there was a minority two-party government of Labour and NZF with the Greens providing confidence and supply and Ministers outside Cabinet.)

Coalition governments are common elsewhere. At the time of writing, Slovakia is negotiating a coalition government, with the lead party having won just 23 percent of the vote. There is talk that they may need another election soon.

Even our parties are coalitions. National is a merger of the country-based Reform Party and the urban-based Liberal Party. A way of thinking about the 1984-1990 Labour Government is that it was a coalition between the traditional Labour Party and the yet-to-be-formed ACT party in which the minority party dominated. As we ponder on what is going on in the US, we may think of the Republican Party as a coalition of traditional conservative Republicans and the extreme right. There are similar obvious, but not as public, tensions among the Democrats – they currently handle them in a more civilised way.

The reasons the tensions are not as visible in the US as they are in New Zealand (or Slovakia) is the different electoral systems. MMP does not create these tensions. It exposes them.

I puzzle over whether these tensions are greater today than they once were or whether they are just more visible. Once Māori were hidden in the countryside, women in the kitchen, homosexuals in closets. They would be much more visible today even if we did not have MMP.

Māori are an interesting example of how electoral arrangements change visibility. They were confined to four seats in 1868. National’s first Māori MP won general seats in 1975 (although James Carroll won one for the Liberals back in 1893 – he was twice acting Prime Minister, a Māori first). Even if parties are unable to win the Māori seats, under MMP they want to win as many list votes as possible and they put Māori on their lists. Today there are more than twice as many MPs of Māori descent as there are specific Māori seats.

Not all social diversity is evident in public discussion. We pretend there is no class in New Zealand. But class plays a role in both American and British politics – especially that the traditional working class sense they are being left out. It could happen in New Zealand.

(We confuse Māori with the working class, even though there are more non-Māori who belong to it. We talk of Māori as a unity. They are not. In class terms there is a Māori elite, a growing Māori bourgeoisie, and a Māori working class. There are other tensions within Māoridom which non-Māori only see dimly.)

Historically for logistic reasons, we have had electorates based on regions except Māori are separated out. If we had electorate based on all ethnicities, class, gender, income or religion, we would have a very different politics. MMP reduced the importance of regions.

One of the consequences of MMP is that political tribalism is fading. The number who vote ‘my party – right or wrong’, often with clenched teeth, seems to be diminishing. As a result the dominance of the two main parties is lessening. In the 1987 and 1990 elections Labour and National won 83 percent of the vote between them; this year they have been struggling to get 65 percent. (There is a sense that the 2023 voting outcome is the same as that of the 2017 election, except for smaller support for the main parties – and Labour’s and NZF’s unwillingness to cooperate.)

What has been unusual about the 2023 election was not that it will lead to a coalition government, but that the coalition negotiations have been going on in public before election day. (There were private ones between Labour and the Alliance in 1999.) It has been a bit weird really. Like everyone playing poker not knowing what cards they hold. After the election those with decent hands will play in earnest.

What struck me about the pre-election game was that every party – even minor ones – talks as if FPP still applies, as if they are going to win the election and will be able to implement their manifesto promises unconstrained by any other party. Yeah, right. Not one said much about respecting the wishes of voters. Not one set out their bottom lines which they will not negotiate nor what they were willing to negotiate. One hopes they prove better organised in the post-election negotiations.

Whatever party ‘wins’ the election, they will have been rejected by a majority of voters. That is one of the reasons we don’t like coalitions. As a rule, we prefer ones involving a minority government to a majority one consisting of representatives of two parties.

Underneath there are questions of how to manage the diversity in the nation which MMP, among other indicators, exposes. Is there anything we all have in common other than living in the same land? (There are even around 250,000 potential voters offshore.) The centralist solution is to impose some sort of national unity – in laws and rhetoric: ‘you will bloody well follow the All Blacks’. Bugger any minorities.

We are long past that possibility although there are authoritarian regimes overseas which pursue it, often crushing (ethnic, religious and sexual) minorities. What the growing affluence has meant is choice – of lifestyle as well as what you buy on the supermarket shelf.

It seems to me that we can only hold the nation together by tolerating this diversity – the only intolerance should be towards the intolerance. We need to make tolerance of diversity a proud national characteristic. (Up you, authoritarian regimes.) That means greater decentralisation.

Yes, governments will have to take decisions with which minorities are uncomfortable, but the decisions should be in a context of respect for them. I broadly accepted our anti-Covid strategy but was uneasy about its attitude to, and treatment of, those who disagreed. (Yes, many were nutters, but they had a right to be nutters, providing they impacted minimally on others.)

It is a feature of the last seventy-odd years that the one occasion we came together politically was in the war against Covid and the rejection of the views which caused the Mosque Massacres. It won the Ardern Government a majority in parliament in 2020 – despite National winning more votes than Labour in 2017.

But the mood of tolerance over diversity was not continued. The 2023 election campaign has certainly been divisive. Top of the post-2023 Prime Minister’s list has to be promote tolerance and think more about decentralisation.

               The darkness drops again; but now I know

               That twenty centuries of stony sleep

               Were vexed to nightmare by a rocking cradle,

               And what rough beast, its hour come round at last,

               Slouches towards Bethlehem to be born?

PS. An earlier column discussed the unthinkable of a grand coalition.

Comparing the Singapore and New Zealand Economies

This entry was posted in Globalisation & Trade, Growth & Innovation, Pundit on by .

Singapore and New Zealand have much the same population – a bit over five million people. They are both affluent economies – Singapore is more affluent than New Zealand although there are reasons to believe the data exaggerates the differences. Because of their resource base and location they have rather different economic structures. Yet the two small economies work together in the international political economy.

New Zealand’s land area is 368 times that of Singapore, so there is a lower population density and lower economies of agglomeration. (New Zealand’s EEZ is roughly 4000 times greater.)

The difference results in quite different economic structures. Compared to the typical affluent economy, New Zealand has a large natural resource sector based on the land and sea; Singapore’s natural resource sector is negligible. As a consequence, if Singapore was located as far away as, say, the Falkland Islands, it would be as poor and as unpopulated as they are.

But it is not. Singapore is near the centre of the world economy. Almost half of the world’s population lives in countries within 4000kms, producing over a third of the world’s GDP. Both figures are increasing. Australia is the only a country of any significant size within the New Zealand 4000km-circle. Australasia has 0.4 percent of the world’s population and 1.1 percent of its GDP.

(One OECD report estimated that reduced access to markets relative to the OECD average could reduce GDP per capita by as much as 11% in Australia and New Zealand. Conversely, a favourable impact of around 6-7% of GDP is found in the case of two centrally located countries: Belgium and the Netherlands. Singapore was not included in the study, but applying the latter figure to it, New Zealand’s GDP would be depressed relative to Singapore by 17 percent, probably more.)

The structural consequence for the manufacturing and tradeable services sectors is that Singapore is involved with the web of Asian supply chains, whereas New Zealand manufacturing mainly consists of primary-product processing or small, localised market supply where importing would be too complicated or costly. Its businesses are rarely in the middle of supply chains, which have been one of the most dynamic international developments in recent times.

(A nice illustration of the difference between the two countries is that New Zealand is a supplier of milk powder to Singapore, which converts it into infant formula which it distributes throughout its region.)

Not only is Singapore central but it sits on the Straits of Malacca, a critical link in the international transport network. It is the international hub for the countries which encircle it.

So the two countries have quite different economic structures. Historically, New Zealand’s main resource-based activity has been pastoral farming, with wool, meat and dairy products once making up over 90 percent of total foreign exchange earnings. A shrewd summary was that New Zealand was an ‘exporter of processed grass’ – processing through livestock and factory. Its comparative advantage was not so much its land – which is not particularly fertile – but a generous supply of sunlight and water. For a variety of reasons, there has since been a substantial diversification of the farm sector in the last decades into forestry, horticulture and wine over the last fifty years. Additionally, the fishing industry has boomed both offshore and with fish farming.

Perhaps the international tourist industry should be included among the ‘resource-based’ industries, given that scenery, as well as novelty, is a major appeal for one of New Zealand’s biggest foreign-exchange earning industries. If the isolation adds to the attractions, it also puts New Zealand a long way from where the tourists live. In contrast, Singapore tourism arises from it being at the centre of that large Asian population – its local tourist attractions are primarily urban.

Both economies have the large service sector characteristic of a modern affluent economy. But Singapore’s financial and business sector is a major Asian and world centre; New Zealand’s financial and business sector mainly services its domestic market. Singapore’s dominance arises from its location and a sound and robust domestic rule of law which has recently been strengthened by the weakening of Hong Kong with Beijing’s increasing involvement in its affairs.

Their external structures for goods are quite different. Singapore’s exports of goods and services (including re-exports) amount to around 176 percent of its GDP, while its imports are 148 percent (in 2019); New Zealand’s comparable figures are both 27 percent. The ginormous Singapore figure reflects its involvement in supply chains because of its near neighbours and location on the Malacca Straits. Its re-exports account for over two-fifths of Singapore’s total sales to other countries in 2000. This is evident in that Singapore’s principal exports are electronic components, refined petroleum, gold, computers, and packaged medications, while its principal imports are electronic components, refined petroleum, crude petroleum, gold, and computers. New Zealand’s re-export proportion was nearer 4 percent, although this does not include imports of inputs such as oil and fertiliser, which are vital in the production of exports.

In the nineteenth century, New Zealand’s cables from Europe came through Singapore. Its defence was seen as critical to New Zealand; the ‘fall of Singapore’ in 1941 resounded through our thinking for decades, so much so that until recently we maintained an army base there. Once it was our key Asian international air terminal, including when we were flying west to Europe.

Such links have become more tenuous in today’s changing world of communications, but New Zealand and Singapore work together on a variety of international issues. Singapore’s first international trade agreement still in force is the Closer Economic Partnership signed with New Zealand in 2001. It is our second; our first is the 1983 Closer Economic Relations with Australia, which replaced the 1966 New Zealand Australia Free Trade Agreement.

Evolving out of that partnership, the two countries have worked together on a range of other international deals including:

2005: Trans-Pacific Strategic Economic Partnership P4 – with Brunei and Chile;

2009: ASEAN-Australia-NZ FTA – 12 countries;

2018: Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) – currently 12 countries;

2022: Regional Comprehensive Economic Partnership (RCEP) – 15 countries.

Additionally, they are involved together in the following sectoral initiatives:

            Digital Economy Partnership Agreement (DEPA);

            WTO Joint Statement Initiative (JSI) on e-commerce;

            Small Advanced Economies Initiative;

            Singapore-New Zealand Declaration on Trade in Essential Goods.

(The last deserves special mention. It was signed in April 2020, just after the beginning of the COVID pandemic, to which it is a response, indicative of the warm and ongoing relationship between the two countries. Seven other countries have since made non-binding ministerial declarations.)

Some of these agreements are ‘open plurilateral’ – that is, they are designed to allow countries not involved in the original agreement to join (as happened with the United Kingdom joining CPTTP in 2023).

The commonality of the two countries arises from both being small. Each depends on a rules-based international trading order which favours unrestricted (or very limited restricted) trade. In a free-for-all world it is too easy for small nations to be bullied. Lee Kuan Yew’s comment that whether elephants make love or war, the grass gets trampled, is apposite for New Zealand too.

Has There Been External Structural Change?

This entry was posted in Growth & Innovation, Macroeconomics & Money, Pundit on by .

A close analysis of the Treasury assessment of the Medium Term in its PREFU 2023 suggests the economy may be entering a new phase.

Last week I explained that the forecasts in the just published Treasury Pre-election Economic and Fiscal Update (PREFU 2023) was similar to the May Budget BEFU, except that it showed weakening in the fiscal position.

What I did not discuss was the PREFU 2023’s medium-term outlook which presents the economy returning to track after wobbling last year and this. A serious forecaster always has a medium-term view although there is always a high degree of uncertainty (fan) around it.

I should not be surprised if Treasury is currently reviewing its medium-term outlook. A group of diverse macroeconomists with which I am associated are. Some of their issues are too technical for a column but here is my response to their discussion.

I focus here on the external sector, asking whether there has been some structural change in the last few years. The possibility is there in the PREFU 2023 forecast of the Net International Investment Position (what we owe overseas less what is owed to us) rising from about 50 percent now to near 60 percent in 2027. That suggests that a substantial element of our economic growth in the next few years will be the result of overseas borrowing.

The forecast rising net debt is largely driven by the current account deficit (i.e. import payments over export receipts). Currently they amount to about 8 percent of GDP. The deficit comes down but remains higher than in the decade before 2022, which is the arithmetic cause of the rising net debt. The high current account deficit seems to come from three causes:

First, there is some reduction in our export prices, especially for dairy products. The Treasury forecast expects no significant recovery. This suggests a structural change probably arising from the slowing down of the Chinese economy and their consumption of our food exports. Lower export prices mean lower export revenue, and that increases the current account deficit. It also reduces the prosperity of the farm sector.

Second, while the volume exports of goods has continued to expand, there has been a falloff in service exports, particularly tourist receipts. I have not seen a thorough account of what is happening here so I must be cautious. There are two major possibilities. One is that the post-Covid recovery has not worked through to the tourist sector yet. Rather, after two years of restrictions, Northern Hemisphere tourists are visiting nearby destinations, and when they have exhausted them they will move on to more distant ones. The other possibility is that there has been a structural change in the international tourist industry – perhaps airfares are going to be permanently higher – so our tourist industry is on a lower growth track. Given the importance of the tourist industry’s generation of foreign exchange, the latter scenario would represent a major structural change, as would lower export prices.

The third possible structural change is the fiscal stance. To go back to last week’s PREFU column, the big change seems to be the falloff in corporate tax receipts. PREFU 2023 gives no account of why this has happened and expects the receipts to be back on track in a couple of years. Let’s hope it is right.

Even so, public debt continues to rise faster than GDP. PREFU 2023 expects net public debt (excluding the NZ Superannuation Fund) to be near 40 percent of GDP over the next few years, in contrast to 20 percent or so before COVID, with no expectation of a significant fall.

(There are a number of measures in the PREFU 2023 forecasts. I am not fastening on a single one in the way the election ‘debate’ does, but looking at them all. As I said, the issue is technically complicated.)

If the government is borrowing more, then someone has to be lending to it. Generally that ‘someone’ is overseas, although the channel through which the loans flow  is complicated. As a rule, the New Zealand Government borrows in New Zealand currency, but further along, the lender to the government is, typically, converting foreign currency into New Zealand dollars. Suppose the public borrowing is used for diesel to fund capital investment. Ultimately, the diesel has to be paid for with foreign currency.

(This is a severe omission in explanations like Modern Monetary Theory when they ignore the foreign sector. The index of Steve Keen’s The New Economics: A Manifesto – which, by the way, is a much better exposition of MMT than his earlier book – does not mention the balance of payments, exports or imports. Were modern economies so simple.)

Forgive me if I don’t give here the details of the complex analysis. What seems to be happening is that we are not adjusting our economic behaviour for the expected reduction in the terms of trade. Over the next four years, consumption and investment are expected to grow more slowly than total production (GDP) – public consumption is actually forecast to decline – but the production is less valuable because imports are more expensive relative to exports, so what we can afford to spend is growing slower than consumption and investment. (PREFU 2023 does not publish sufficient tables to be sure of this.) Thus, to maintain our desire for growing national expenditure, we have to borrow more overseas so that foreign debt rises.

The good news is part of that borrowing is for business investment, which is expected to rise faster than consumption, and will, presumably, add to productivity. Even so, it is not obvious that national consumption should be rising quite as fast as expected. A neutral observer, observing that public spending is already constrained might suggest that the restraint should be on private spending, although those with political agendas might argue differently. (Remind me of the economic case for general tax cuts.) This conclusion is not the outcome I expected when I first began analysing the medium-term PREFU 2023; facts have a bad habit of getting in the way of preconceptions. Ultimately then, PREFU 2023 seems predicated on a structural change in our terms of trade with slower economic growth prospects in the medium term. Oh dear.

The ‘Recession’ Has Been Called Off, But Some Households Are Still Struggling

This entry was posted in Distributional Economics, Macroeconomics & Money, Pundit on by .

While the economy is not doing too badly in output terms, external circumstances are not favourable, and there is probably a sizeable group of households struggling because of rising interest rates.

Last week’s announcement of a 0.9 percent increase in volume GDP for the June quarter had the commentariat backing down from their confident predictions of a few months ago that the New Zealand economy was in recession. Presumably not all of them. It is the doomsters who capture the headlines (and will continue to do so, since those who choose the headlines want to use large type rather than a track record of those with sober forecasts).

In fact the Treasury was not among the doomsters. Its PREFU 2023 expected GDP to rise 0.6 percent in the quarter – in the right direction and within the margin of forecasting error.

In any case what does the term ‘recession’ mean? As I have explained in previous columns, the definition is based on one used for the US economy and almost certainly does not apply to New Zealand, were we to do the systematic analysis which underpins the US definition. But who cares about systematic analysis when the objective is to get a headline?

However, we should not be complacent about what is happening to the economy. Allow me to compare the June 2023 year with the June 2023 one, which reduces the noise – some of which is forecasting error, some is for timing.

It turns out that volume GDP per capita is higher this year than last, perhaps by 2.2 percent. I confess I was surprised at this and had to think through what was happening. (I am not seeking headlines, just clarifying my thinking – and yours, I hope.)

Volume GDP measures output and not spending power. The difference arises because some of the output is exported and the sales price it gets may go down, as it has just done, which reduces spending power. Adjust for that decline, the spending power for the June 2023 year was similar to that for 2022. So on average we seem to be about the same.

That is for the economy as a whole. That need not be the increase for the household sector part of it. The disposable household income account for June 2023 is not yet published; let’s assume that it too shows no change. (I’ve italicised ‘assume’ to emphasise we don’t know.) Disposable income is a measure of spending power.

(Even then, we need to take care about recent migrant households. I am guessing they have a greater share of disposable income, so it may be that with the immigration surge, the disposable income of those already here is down a little. This is not to say that new migrants are stealing income from the rest. They are adding to production and being paid for it.)

However, if average household spending power is steady, that will not be true for each and every household. Some must have above average increases, some below average. Probably many of the latter households are paying higher mortgage interest – and increasingly, as their interest rates come up for renewal. Presumably they are very grumpy.

But other households with savings are receiving higher interest so their disposable incomes are going up. I take it they are not so grumpy, unless they take the commentariat promise of a recession as gospel. (Additionally, with rising interest rates more of ‘spending power’ must be going offshore to pay for mortgage debt funded offshore.)

The conclusion from a more careful than usual analysis is that while the economy is not doing too badly in production terms, external circumstances are not favourable, and there is probably a sizeable group of households struggling because of rising interest rates when they were not a couple of years back. (Observe that I have not had to use the ‘R’ word; not once.)

Is this column breaking my usual rule of not commenting on election matters shortly before an election? Not really – there is no prohibition on informing voters.

Nor am I blaming the government for the state of the economy. You will notice the two main factors in my story of sluggishness are external – falling export prices (plus low tourist arrivals) and rising international interest rates. It is too easy to blame the government – whatever its colour – for things going wrong.

The government can temporarily boost the economy but that damages the medium-term prospects. According to PREFU 2023 it has not. The current fiscal balance is currently contractionary – in contrast its figure 2.18 (p.58) suggests that just before the 2017 election the balance was expansionary; before the 2020 election it was much the same as today.

That may not seem to be the way matters are seen in the commentariat headlines or the political debate, neither of which has been particularly constrained by the facts.

What is PREFU 2023 really telling us?

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What is PREFU 2023 really telling us?

Despite the headlines, things are not much worse than at the time of the 2023 budget, but fiscal management is always difficult.

The Treasury is required by law to publish a Pre-election Economic and Fiscal Update (PREFU) a few weeks before a general election, just as it is required to publish one before the (May) budget (BEFU) and a half (fiscal) year one in December (HEFU). The purpose of a PREFU is to minimise any surprises to the new government.

PREFU is an independent assessment by the Treasury. There is no input by politicians other than to advise the decisions that Cabinet has made which might affect it. That means that some of Labour’s election policy promises are excluded; in any case, the announced ones involved only small increases in government spending phased in over the next three years.

The reality is an EFU is usually a very boring document, as no doubt the Treasury officials who work on it think too. It is packed with detailed information of great interest to economic wonks, but there are rarely any headlines of public interest. So the politicians make them up, predictably exuding confidence if they are in government or claiming the EFU reflects a disastrous state of the nation if they are not. The media trawl through the detail to identify as spectacular a story as they can find, while the commentariat mixes in their political views. What is a straight-down-the-centre columnist to do, other than bore readers with a factual summary?

A PREFU is particularly difficult from this perspective, since it is published only four months after the BEFU, so there are only four months more data (often just one more data point if a series is compiled quarterly). Not surprisingly then, there is no great revision to the Treasury’s macroeconomic outlook.

The Treasury, bless them, provided a comparison with their previous BEFU forecast. Often it is very hard to see any difference, indicating that the new data was consistent with their May forecast. The biggest difference is that migration is surging more than was expected. Smaller differences, well within forecasting error, are that interest rates are fractionally higher and yet house prices will stop falling sooner (the effect of the migration?); the external terms of trade are fractionally lower and so the current account deficit is slightly higher but still coming down. Consumer prices are now thought to be falling a little more slowly than PREFU projected. But the GDP and unemployment tracks are much the same.

Yes, I am assessing the changes in terms of the margins of forecasting error. As I explained here, it would be better to provide ‘fans’ rather ‘point’ estimates. PREFU almost does, because it looks at alternative macroeconomic scenarios, reflecting the uncertainty of economic forecasting and various minority views within the forecasting teams. (A healthy forecasting team should have dissent and hard-fought arguments over the different scenarios.) The bands of uncertainty can be wide. For instance, the 90-day interest rate is forecast to be 3.9 percent per annum in June 2025. but the upper band is 5.4% p.a. and the lower one 2.4% p.a..

The PREFU also devotes more than a page to what is going on in the Chinese economy which it judges as weakening with some impact on our external terms of trade. I think what it is saying is that Treasury is concerned, they are monitoring China closely, but they don’t know enough to work how events will evolve there.

To summarise, there has been a tendency for the commentariat to highlight bad economic news, but things haven’t changed much since May (which is good news for all the political parties which have been using BEFU as the base of their election policies). Share prices dipped on the day before the PREFU was released. The reason given is that the share market expected a bad update. It wasn’t. (Mind you share prices often fluctuate for no rational reason; although the commentariat always has an explanation after the event.)

Treasury needs to forecast the macroeconomy to underpin its fiscal forecasts. To nobody’s surprise, these show some weakening. In particular, the Treasury has lowered its corporate tax forecast since the BEFU. As far as I can assess, if that had not happened the fiscal position would be much the same between the two EFUs. (There are, of course, numerous minor positive and negative changes.) Forecasting business profits is one of the most difficult parts of the macroeconomic forecaster’s job; I have never had to forecast corporate tax, but I know there is a long history of Treasury struggling with the exercise.

As widely reported, the forecast date for the planned budget surplus has been pushed out from the June 2026 year to the June 2027 year. Year measures are a bit coarse. The actual delay is probably about seven months rather than twelve. So with four months more data the surplus date has been delayed seven months, a sobering reminder of the volatility of a number which is a small difference between two very large numbers. (A one percent error in the forecast of revenue for the June 2024 year and an accurate expenditure forecast, could generate a 15 percent mistake in OBEGAl, the standard measure of the deficit.)

Remember too, that much of any borrowing is for capital spending. In 2027 the net worth – its assets minus debt – of the Crown will be higher than today. It is a proper economic discussion to debate how much of the government’s capital investment should be funded from current revenue and how much from borrowing. (I can hear a Treasury official grumbling ‘don’t forget we still have to borrow the bloody money’.)

What the PREFU is saying to the Minister of Finance after the election, is that the books are not in too bad a position (providing you have not promised anything stupid), but always – always – you will be under fiscal pressure. And you may have to deal with unexpected shocks.

The Treasury gives little guidance as to the particularities of the current pressures (other than the implications that politicians always want to reduce taxes and increase spending). Clearly the war resulting from the Russian invasion of Ukraine is among the big impacts on the world economy. China’s difficulties may be yet to come.

However, what I don’t think we have appreciated sufficiently is the impact of the Covid pandemic and the measures taken to reduce deaths. They had a substantial immediate economic impact – you can see it in the PREFU. But that is still unwinding three years later. It would be naive to think that those economic measures were a free lunch and almost as naive not to think about having to pay for the lunch. Trade-offs are central to economic management as the next government – whoever it may be – will find, even if in the heady days of election campaigning trade-offs are largely ignored.

Ignoring Tax Tradeoffs

This entry was posted in Pundit, Regulation & Taxation, Social Policy on by .

Public policy frequently suffers because we don’t look at alternatives.

Thus far the Labour Party’s only ‘new’ election (economic) policy is to remove GST from fruit and vegetables.

Even the accompanying promise of adjusting Working for Families is much in line with what it has being doing in the last six years. It is also an acknowledgement that the government has not been able to improve the scheme despite an almost universal agreement by the knowledgeable that the sixteen-year-old scheme is neither efficient nor equitable. The Key-English Government could not solve the conundrum either. The promise to offer free dental care for under 30-year-olds is also an extension of past policies.

That suggests that Labour’s positive campaign is that it has done a good job and promising to progress its policies, but that there is nothing new it needs to offer – except cheaper fruit and vegetables. Whether the electorate considers this a good offer will be revealed on election night.

Why GST off fruit and vegetables? Why not bread and milk? I am guessing it comes from the public health sector, which has been concerned that people do not eat enough fresh fruit and vegetables. It found that higher taxes on alcohol and tobacco contribute to restraining their misuse and use. The sector, assuming this success will as easily apply to other products, has called for increased taxation on what is damaging to health – like sugar – and reduced taxation (or subsidisation) on what should be promoted – like fresh fruit and vegetables. In its enthusiasm it has paid little attention to the practicalities of implementation or the effectiveness of the price alteration in changing behaviour.

There has been considerable criticism of the proposed policy, ranging from the practicalities of implementation – what would be in and out, how food businesses would cope since they would almost have to keep two sets of accounts – to the possibility that most of the reduced tax would be absorbed by food outlets and little would be passed on in lower prices to purchasers. It is also argued that any reduction is greater benefit to high-income households than to low-income ones. Little attention has been given to any health benefits; there is not a lot of evidence one way or the other.

One of the main attractions of GST is its uniformity, which makes its implementation simple. (I applaud the Labour Government’s various measures to broaden coverage.) Varying the rates on one product group tempts a free-for-all on everything else. Casual advocacy can think of reasons for more or less consumption tax on almost every known product.

I support targeted excise duties on specific products which can be shown to be administratively practical and beneficial for the purpose. Currently that includes alcohol and tobacco for health, fuel duties for funding the transport system and carbon taxes for aligning individual decisions to the real cost of the emissions they generate (but I do think our current emissions trading scheme is very muddled). However, most popular proposals do not bother with such careful analysis. That leads to a higgledy-piggledy mess like we had in the Muldoon era.

Labour’s response seems to be that whatever the experts say, GST off fruit and vegetables is a popular policy. Apparently, the party’s focus groups favoured it about two to one.

I do not know exactly how the proposition was posed to the groups. Did they ask ‘do you support the removal of GST from fruit and vegetables?’ or did they ask ‘do you support the removal of GST from fruit and vegetables even if it is difficult to implement and much of the benefit of the lower taxes may go to retailers rather than purchasers?’

You may think the second question is loaded but so is the first, offering a policy change as though it is free. Next time you see the response to a focus group or survey question, ask yourself whether putting the same sentiment another way would have resulted in the same answer.

I would have preferred that the focus group had been asked ‘do you support the removal of GST from fruit and vegetables or would you rather have the cost of the reduction used to give you an extra $140 a year?’ I am guessing that the two-to-one support for the GST reduction would near reverse.

The cost of the lower GST is about $500m a year. The same $500m could be used to cut the bottom income tax rate from 10.5 percent to 9.5 percent so that every taxpayer who earns at least $14,000p.a. would be $140p.a. in the hand better off. It would be proportionally more beneficial to the poor than to those on higher incomes. You might be able think of options to spread the tax reduction more fairly, but this is my guess about the option voters would best respond to.

Putting the policy choice this  way, many in the focus groups might be derisive of the size of the giveaway – less than $3 a week for most adults and nothing for children.  (National’s lowest offer is even smaller.) But that is true for the GST reduction. Do we really want that sort of transparency of policy in an election year?

My concern is wider. We usually discuss tax issues by looking at only one side of the story. I can understand people being opposed to a hike in income tax but it would be more popular if it was presented being used to increase spending on, say, health care, thereby reducing waiting lists and the need to go private. (In fairness, the Greens say they want to use the proceeds from their wealth tax to make dentistry free. I support both policies although there are some technical difficulties with free dentistry – did they consult anyone with expertise in dental economics before formulating their policy? But universal free dentistry is not at the top of my priority list for using any additional revenue.)

Regrettably, public discussion focuses on tax changes but not what their effect on public spending would be. That’s fine if one is opposed to all public spending, but it is hard to find anyone who is quite so rigorous. Even ACT MPs are happy to accept their salaries and expenses – once upon a time parliamentarians did not get much of either.

Economics is about tradeoffs. Sadly, these tradeoffs often get ignored in public discussion despite them being integral to public and private life. Even going without fresh fruit and vegetables trades off against your health.

PS. National’s tax package has been well covered by others, and hardly needs comment here. However, a broader point is that proposing new taxes to partially fund the reductions, breaks the consensus of ‘thou shall not introduce new taxes’, paving the way for a less hysterical discussion on capital gains and wealth taxes.

The Chinese Property Market and New Zealand’s Future

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Evergrande and Country Garden – two giant Chinese property development companies – are a portent of the turbulence before us.

The recent financial failures of two ginormous Chinese property companies, Evergrande and Country Garden, at various times ranked the second largest and sixth largest in China have implications for the New Zealand economy.

The Evergrande Group has been struggling since 2021 (here). It has just filed in a New York for Chapter 15, a bankruptcy protection in the US enabling it to restructure its debts. The debts – most are not American – are estimated to amount to an eye-watering US$300b (say NZ$500b). One assessment concluded that in February 2022 its liquidation would return only between 0% and 10% of principal to creditors.

Also in August 2023, Country Garden defaulted on the US$45 million with regard to interest disbursements linked to two offshore US dollar bonds. I won’t go through all the turmoil which has since happened, but summarise by saying that today Country Garden appears to be where Evergrande was two years ago. It may go down faster because Evergrande has undermined financial market confidence.

Moreover, while not so prominently in the news, there are many Chinese property companies – some comparably large – which are also in increasingly difficult financial troubles. China has many ‘shadow’ banks, that is banks whicch are not legally regulated in the usual way and which have the potential to collapse the entire financial system.

The immediate precipitant was that in August 2020, the Chinese government enacted a ‘three red lines’ rule which regulated the leverage taken on by property developers by limiting their borrowing based on the following metrics: debt-to-cash, debt-to-equity, and debt-to-assets. The rule’s purpose was to rein in the highly indebted property development sector. It has, but at the cost of undermining many of them. By October 2021, 14 of China’s 30 biggest developers had violated the regulations at least once.

More fundamentally, there had been a speculative property boom starting over a decade earlier in which the companies relied on inflating property prices to ‘balance’ their books. It was a kind of Ponzi financing, compounded by local authorities financing themselves by selling land to the companies, who financed the sale from the cash flow coming from new investors and banks.

Because of the local authority involvement the companies have been building accommodation in third and fourth level cities, where there is no significant demand. There are pictures of rows of apartment blocks which are said to be entirely empty. They will be in the company books at cost plus inflation, but there is little prospect that they can be sold at those prices, if they can be sold at all.

Observe too that a rapidly growing company – anywhere in the world – is unlikely to develop rigorous internal systems to administer and monitor itself. It is not until the receivers move in that we learn just how slack the failing company has been (and how much corruption).

I take it that the central authorities judged that the boom was unsustainable, and that the later the crash the bigger it would be. So they thought it better to act soon, even if that put China’s property and financial markets into turmoil.

There is much more that can be pieced together or guessed. But the issue for this column is the impact on New Zealand and the world.

There is a general agreement that  financial instability may politically weaken Chinese premier Xi Jiang. At the very least, it requires him to pay more attention to domestic issues. Among the issues which would surely worry Xi and the central committee is demonstrations outside Evergrande’s offices by investors who had partly prepaid for housing which has not been built or finished and by subcontractors who had not been paid. The demonstrators may turn on the government.

This does not mean that China will cease to be significant politically in the international system. It is too big and important for that. There is even the uncomfortable possibility that it will be more aggressive externally in order to take its population’s concern off failing domestic issues. (Putin’s Russia is a current example, but history records many others.)

Moreover, the property sector is said to contribute 24-30 percent of China’s GDP. The turmoil in its property market seems to be contributing to the slowdown in the growth of the Chinese economy, which gives Xi less room for economic manouevre; it may slow down its commitment to the Belt and Road Initiative.

(The other great Chinese growth driver has been exporting and that too is hiccupping, partly because the world economy is slowing down and partly because many countries are trying to de-risk their dependence on China. It is also possible that the gains from its thriving export sector are not increasing as fast as they have done over the last few decades.)

One assumes that eventually the government in Beijing will bail out the Chinese property sector (and the local authorities and the banks that have been financing it). There are various ways of comparing the size of the Chinese and New Zealand economies; one says it is about 70 times as big. So Evergrande’s NZ$500b debt is equivalent to about $7b here. (Double it for the other property companies also going under?) Our Treasury and Reserve Bank would blanch at a bailout of this magnitude. (I have more confidence in their expertise to do a bailout; they have had more practice. And they wouldn’t have to deal with a shadow banking system.)

Will the financial turmoil in China impact greatly on the world financial system? The conventional wisdom is that the exposure is not great. There may be some non-Chinese financial institutions which are overexposed and will suffer – even crash – but presumably they are a small proportion of the total.

Of greater concern to New Zealand is whether the slow growth of the Chinese economy will impact on our exports there. Our trade dependence on China is extraordinary. It is the biggest market for milk products, sheepmeats (for beef it is only second), fish, apples, wine and honey (for kiwifruit it is third). Thirty years ago, China did not make New Zealand’s top ten export destinations in any of these products. We may already be seeing an impact from the growth slowdown in international dairy product prices.

We have long been aware of our export overdependence on China, compounded by selling to other markets in East and Southeast Asia (including Australia) which are themselves very dependent on the Chinese economy. (Exports to these markets are about two-thirds of our total; China alone is a third.)

There have been considerable efforts to diversify; we have just settled free trade agreements with Britain and the EU. The big diversification could be with India, but the Indians have not been nearly as enthusiastic as we are. After all, compared to the others they are negotiating with we are a tiddler. A deal was a ‘priority’ for the Key-English Government, it has been for the Ardern-Hipkins one, and National has announced that it would be for them. There is a bit of a pattern here, isn’t there? When we finally get an FTA,  it is likely there will be little improvement for dairy access.

We are negotiating trade deals which will add to the diversification: with the ‘Pacific Alliance’ – the Latin American regional group made up of Chile, Colombia, Mexico and Peru – and with the Gulf states – Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Oman and Bahrain. Negotiations with the Russia-Belarus-Kazakhstan Customs Union are currently suspended, while a long-term ambition for an FTA with the US is hardly on the table.  Open plurilateral deals enable new members to join, as when Britian joined the CPTPP, adding to the diversification; existing bilateral trade deals are also being upgraded.

This probably means that China and its associated economies will continue to dominate the prospects for the New Zealand economy for some time to come. What is going on in China’s property and finance markets may be more important to us than the October 2023 election.

The Future Structure of the New Zealand Economy

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I was asked by a Spanish journalist the following two questions (particular with attention to a historical perspective):

How likely do you see (if at all) a transition from an economy based on primary products towards an economy where digital services exports might play an important part?

I would also like to ask about the economic relationship with China: how much do you think it is going to suffer because of geopolitical reasons?

The Future External Structure of the New Zealand Economy

The search for product diversification of the external sector began with the first settlements in the 1840s – they needed to find something to export, especially as the quarries, such as whales for oil, began to run out. (Market diversification is dealt with in the second part of this article.) By the end of the nineteenth century, the export sector became very concentrated upon wool and refrigerated meat and dairy (‘processed grass’), where New Zealand had a comparative advantage which was turned into a competitive advantage by innovative scientific technology and sophisticated social organisations based on the family farm and collective post-farm processing.

By the middle of the twentieth century, there were increasing concerns with the long-term viability of this strategy. Suitable farm land was running out. (There was virtually no further land to be broken in from the mid-1950s; water resources were largely fully utilised by the 2010s.) Pastoral farming was not creating enough jobs for the burgeoning population.

New Zealand turned to ‘Import Substituting Industrialisation’ (ISI), as did many other economies. It was realised that would not generate enough jobs by itself and by the 1960s New Zealand was seeking export manufactures – notably, there were tax incentives for exporting manufactures and a free trade agreement with Australia. There was also a recognition of the need to diversify the farm sector – including to forestry, horticulture and wine – given the pastoral price experience New Zealand had during the 1930s Great Depression. Additionally, there were potential exports from the fishing resource (New Zealand has one of the largest EEZs in the world, and better fishing management than most) and from tourism. At that time, service exports were mentioned but, except for tourism, they were not near the centre of the public discussion.

The ISI strategy has fallen over in most affluent countries, including New Zealand, which, like most of them, has experienced a major decline in the share of the manufacturing sector and is now heavily dependent upon imported manufactures. As a gross generalisation, New Zealand manufacturing consists of primary product processing or small localised market supply where importing would be too complicated or costly.

When I was studying this – written up in my Globalisation and the Wealth of Nations – I concluded that New Zealand suffered from the major limitations of location and size.

New Zealand is located far from most other countries, in the middle of nowhere. The direct distance from Auckland to Sydney is similar to the distance from Madrid to Warsaw (and there is only water, not people, in between). International transport costs – and sometimes time – are a considerable burden. One consequence is that New Zealand is rarely in the middle of supply chains, which have been one of the most dynamic developments of manufacturing in recent times. There was a fashion for saying New Zealand should be exporting about 40 percent of its GDP, comparable to many other OECD countries, instead of its current 30 percent. What that overlooked was that most of the additional 10 percent were supply-chain ‘re-exports’, which are not really an option for New Zealand, which is only at the beginning or end of supply chains.

New Zealand is small with only 0.06% of the total world population. It ranks 123rd in the list of countries by population. Its largest city, Auckland, has a population of less than two million, even if Hamilton is included. There are more than 300 cities in the world which are larger on the Wikipedia list.

Urban size is important for the economics of agglomeration which lowers the cost of production and increases economic dynamism by competing multiple suppliers, greater specialisation and thicker labour markets. These are key to high productivity, high rewards manufacturing and services. They were judged to be of such importance that from the late 1990s New Zealand has given special attention to getting Auckland to function as effectively as possible. (Economies of agglomeration are offset by economies of congestion; unfortunately Auckland, located on a narrow isthmus, generates the latter.)

New Zealand’s size makes one pessimistic about there ever being enough agglomeration to make it a major international centre for manufacturing and services. Here are some examples of its strengths and weaknesses.

Fisher and Paykel were an Auckland-based, exceptionally innovative, provider of ovens, electric cooktops, dishwashers, dryers, freezers, ranges, refrigerators and washing machines. Unfortunately, transporting whiteware is expensive. The firm increasingly moved production offshore and eventually was taken over by Haier Group Corporation, a multinational home appliances and consumer electronics company based in China.

An offshoot from the innovation was Fisher and Paykel Healthcare, which designs products for respiratory care, acute care, and the treatment of obstructive sleep apnea. Because their shipment is less expensive, the company is still based in New Zealand, supplying more than 120 countries, with just 1 percent of revenue coming locally. However, since 2010 it has also been manufacturing in Mexico, supplying the United States.

Over a decade ago, I looked into the potential for a major biotechnology, pharmaceuticals and related research industry in New Zealand. I observed that there was no such an industry in the United States, but rather, it existed in about a dozen US cities, because the economics of agglomeration were powerful. All these locations were larger than Auckland, although if nearby Hamilton with its major interests in related animal biotechnology is added the city was near enough to the threshold. There is today a lot of such research activity and some internationally significant findings, but the industry has not taken off as much as one might hope. It may be because there is not the depth in local venture capital.

Xero is a technology company that provides cloud-based accounting software for small and medium-sized businesses, with more than three million subscribers and offices in Australia, Britain, Canada, Hong Kong, New Zealand, Singapore, and South Africa, and the United States. (It also has connections with Infosys in India.)

Sometimes a particular person’s choice of home can create an industry. Thus it is with ‘Wellywood’ because international filmmaker Peter Jackson (best known for The Lord of the Rings trilogy) chooses to live in Wellington. One feature which helps makes the film industry cluster viable, is that it sends its processing to Hollywood via cable. There will always be eccentric reasons for some industry location.

New Zealand has a ‘nice little earner’ in translation services arising from Europeans completing agreements in the evening, cabling them to New Zealand with its 12-hour difference, and having the translated texts available the following morning – the New Zealanders having worked on them while the Europeans were sleeping.

What then are the prospects for New Zealand’s industrial structure? Compared to other affluent economies it will always have a large resource and resource-processing sector. But their growth is constrained by resource availability. Tourism will remain important. New Zealand is likely to have a modest manufacturing sector much like other rich countries. The domestic service sector will be large and there will be service exports (including consulting and educational services). Weightless exports are likely to become a larger proportion of foreign exchange earners, as they will elsewhere.

But I do not expect weightless exports to become a particularly dominant New Zealand activity for two reasons. First, it will be limited by the lack of economies of agglomeration. Second, it is a labour-intensive industry involving skilled professionals. New Zealanders are very internationally mobile; there are even sizeable communities of Māori in Australia. While the country offers some attractive lifestyle choices – a bach at the beach and a hut in the hills near a ski field – there is the real possibility of key personnel migrating.

The Economic Relationship with China

There are two major dimensions to New Zealand’s relationship with China: economic over-dependence and the security tensions in relations between China and the United States and its allies.

New Zealand is haunted by the dangers of economic over-dependence on a single economy. As recently as 60 years ago, around two-thirds of (mainly pastoral product) exports went to Britain. A decade later Britain joined what became the European Community, which at the time was commonly seen something like Mummy running off with a continental gentleman – or rogue.

For the record, the official and informed view was that Britain should join the community providing New Zealand’s special interests were not compromised. New Zealand had been aware of British accession since at least 1961 and had made (successful) efforts to diversify. Between 1965 and 1980, New Zealand exports had shifted from being one of the most concentrated in the OECD by both markets and products to being near the middle.

Today China takes almost a third of New Zealand’s exports of goods and services but it is so deeply interconnected, especially by supply chains, with East and South East Asia, that in total the wider group probably takes near two-thirds of New Zealand’s exports (depending on how it is defined, but including Australia).

The dominance of China in New Zealand’s trade is extraordinary. It is the biggest market for milk products, sheepmeats (for beef it was only second), fish, apples, wine and honey (for kiwifruit it was third). Thirty years earlier, China did not make New Zealand’s top ten export destinations in any of these products. Significantly, each presents particular political problems in the international economy – most notably, widespread barriers to entry for pastoral products. These products make up a significant share of New Zealand’s exports. They can be particularly difficult to manage, as Australia’s recent tensions with China illustrates.

New Zealand has welcomed the opening up of China’s markets which have been important to its recent prosperity. However, the ghost of the British experience remains. New Zealand went through periods of stagnation – notably in the 1920s and 1950s – because the British economy, and hence its imports, stagnated. Chinese economic growth is slowing down; that could well have a similar impact on New Zealand.

New Zealand has vigorously pursued opening up markets elsewhere. Hence the recent trade deals with Britain and with the European Union. Others are on the table, especially with India. (One with the US is an ambition, but hardly on the table given Congress’s attitudes; in any case the political price may be unacceptable to the New Zealand public.) Existing deals are being upgraded. New Zealand has 14 free trade agreements with around three-quarters of its trading partners by value, including one with China and two big open plurilateral agreements: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership  (CPTPP) of 11 countries and the Regional Comprehensive Economic Partnership (RCEP) of 15 countries (including China). They are of varying quality and often involve limitations to the access of key New Zealand export products.

As when Britain joined the EC, the stumbling block has often been dairy product access. Protecting its dairy farmers seems to be a sine qua non of a sovereign nation.

While improved market access will continue to be pursued and may grudgingly happen, the key to reducing over-dependence on particular markets may be new products sold elsewhere.

The other issue is the security tensions between China and the United States and its allies. The horror scenarios for New Zealand would be a collapse of the Chinese economy or a military conflict between China and the US which involved economic sanctions against China. (There are, of course, gradations below either scenario which would be difficult enough.)

The security horror scenario results in the very careful path New Zealand has trod in its relations both with China and the US – ‘tippy toe’, one might call it. It wants to condemn some of China’s actions, but not so forcefully that it will have trading repercussions, as has occurred with Australia. It wants a security relationship with the US which is not too close because of the China dimension – its public would probably not support a formal alliance – but close enough so that were tensions to rise, New Zealand would have its submissions respected, especially if there were trade sanctions on exports important to New Zealand. (The US unwillingness to offer adequate trade access to New Zealand compounds the question of loyalty.)

Lee Kuan Yew once remarked about small nations, that whether elephants make love or war, the grass gets trampled upon; especially true for a country which will continue to depend upon processed grass.

How Effective is Monetary Policy for Fighting Inflation? A Memoir

This entry was posted in Macroeconomics & Money on by .

Do I detect increasing uncertainty as to the effectiveness of monetary policy to deal with inflation? It may be helpful for an understanding what is going, to recount the conventional wisdom before ‘monetarism’; that term was coined in 1968 so I was there before it and recall some of the debate leading up to it. (To keep this to a reasonable length I have simplified both some of my subtleties and those of others. In particular it does not cover types of inflation triggers – in the early days they were classifieds as ‘cost-push’ and ‘demand-pull’.)

Before Monetarism

When I was an undergraduate, the theory of money was more British based. (Almost as an aside, that means I watched the switch over to an American framework, which may explain why I am more alert than some to the aspects of monetarism which arise out of the particularities of US institutional arrangements.) The Radcliffe Committee, which had reported only a few years earlier, was influential.

It, and other such considerations, led one to be pessimistic about defining monetary stock in a rigorous way for analytical and policy purposes. The ‘M’ in the conventional Econ101 was useful for teaching purposes but which of a host of measures – M0, M1, M2, M3, DCE …. – it refers to was unclear. One interpretation of Goodhart’s law is that any monetary stock measure doesn’t work.

The Demand for Money Equation (DFME)

At the heart of the debate at the time was whether there was a demand for money equation (or to what extent it was stable). I recall an argument in the early 1960s in which Friedman claimed that the demand for money was independent of interest rates and someone else (alas I have forgotten his name) showed it was not.

Econometricians were able to get reasonable DFMEs – after all there were plenty of independent variables to choose from. But they proved not to be very reliable forecasters. Try another independent variable and indeed dependent variables such as the multitude of price indices and income measures, while fiddling around with the time response structure adds to opportunities to torture the data until it confessed; another trick is choice of estimation period.

(An interesting issue is why we have not paid more attention to what price in the economy the RBNZ should be targeting. There are a number of possibilities: the GDP deflator, the Producers Price Index, wages, various asset prices, the exchange rate … as well as the Consumer Price Index – of which there are number of possible measures. The targeting of the CPI is a carryover from the earlier system when it was important in wage setting, but it may also be important when exhortation is being used to affect expectations.)

The estimated equations were also not very precise. High R-squares may still leave a lot of noise – too much for precision management.

Even so, the pure Econ101 demand for money equation got established in the economists’ standard macro-paradigm. I suppose it was because no one can think of an alternative which is as clean mathematically. Radcliffe certainly was not.

The Neutrality of Money

One further assumption was slipped in before the DFME could be used for policy management – that the stock of money has no impact on the level of (real) production in the medium (policy-horizon) period. I was never convinced of this neutrality of money unless we are talking about the very long run. It is a standard controversy as to how quickly an economy adjusts to a shock: monetarists tend to assume quickly; Keynesians, more slowly.

The issue of speed of adjustment is both critical for policy purposes and contested. Before 1984 monetary policy was assumed to take a decade to work through. (In the 1950s, Carl Christ proposed something like: since monetary policy works slowly and fiscal policy quickly, while the Federal Reserve works quickly and Congress slowly, the Fed should be in charge of fiscal policy and Congress in charge of monetary policy. It is not incidental that the way Congress limits fiscal management greatly influences how American economists think about macro-policy; we follow them despite our macro-interventions being more flexible; it would be fair to say, though, that it may have become less flexible since the neoliberal framework took over.)

Then, almost overnight, the conventional wisdom switched to the view that monetary policy impacted more quickly – say, two years. I know of no evidence to justify this change in fashion although I accept that the market liberalisation of the 1980s may have shortened the response time – but I doubt it would have cut it 80 percent.

Going back to the DFME, it follows from the limited version that the stock of money determines the price level in the short-to-medium run. And so monetary policy was assigned the task of targeting inflation. Again, I don’t think there was much empirical evidence for this assignment. But the law is the law, and so the RBNZ has conscientiously pursued this objective. I leave others to judge whether it has been effective.

Interest Rate Management

In fact the RBNZ could not pursue inflation control through controlling the stock of money – there was too much disintermediation going on at the time the new regime was introduced. (I have been told the RBNZ economists had come to this conclusion before 1984.) Instead it used interest rates (especially the OCR), resulting in the RBNZ pursuing a kind of Keynesian policy in the monetarist framework of the RBNZ Act.

My objection to this approach is that interest rates target only certain parts of the economy – inventories, investment, mortgagees – rather than the economy as a whole, so the burden of adjustment was deeper on these sectors than if it had been shared across the whole economy. I argued that fiscal policy should share the burden. This was not a popular view in the 1990s. I argued it both publicly and privately with the RBNZ. (I inferred from their response that they were nervous about saying anything publicly because it might compromise their independence; I found cryptic support in footnotes.) Today, even the Governor of the RBNZ has articulated my sentiment.

So I am not saying that the RBNZ cannot influence the price level through interest rates. Rather I am saying that it is a clumsy, inefficient and painful way of doing so without an accompanying fiscal policy supporting it.

The Exchange Rate

I did not mention the exchange rate in the previous para. That too. I got into a (public) argument with the RBNZ in the 1990s about the role of the exchange rate, with them trying to fob me off with an index which purported to be a measure of the real exchange rate but had the nominal exchange rate in both the numerator and the denominator. Having said that, I have been surprised that the nominal exchange rate has not moved more than it has (which would impact greatly on inflation). One might argue, as I did in the 1990s, that monetary policy covertly targeted a stable exchange rate because if it had fallen, inflation would have been boosted. It is a bit more complicated than that because a current account deficit reflects a deficit in domestic savings relative to domestic investment. The relationship between net savings, interest rates and the exchange rates needs more attention.

Most external transactions have forward cover which goes up to about six months out, so I am told, so one would not expect high short-term volatility. I expected more long-term movement, particularly in a downward direction. I think what has happened is that the monetary regimes I was brought up on had considerable restrictions on capital flows. Following the Smithsonian agreement there was considerable liberalisation so it is easier to borrow offshore. That may be a short/medium run phenomenon; in the longer run the exchange rate may still crash, although the comparative indicators suggest that there are other economies likely to go sooner and that we are most likely to go down during a global financial crisis. Perhaps 2008 was a near miss.

The Great Inflation of the 1970s

A major issue is what was going on during the Great Inflation of the 1970s and how we broke out of it. The conventional wisdom views monetary policy being too loose under Muldoon with the tightening after Rogernomics bringing down the rate of inflation.

My view is more complicated. It gives much greater weight to inflation as distributional conflict; recently Oliver Blanchard articulated a similar perspective.

In the early 1970s, there was high inflation internationally. When it cooled in the mid-1970s New Zealand continued with its high inflation – in the end our prices about doubled compared to our trading partners’. I expect international inflation to transmit into New Zealand under a fixed or near-fixed exchange rate. That explains the early 1970s.

After that I see the high inflation as a consequence of a distributional contest. (The story is detailed in my 1996 In Stormy Seas.) The 1966 wool price collapse had reduced New Zealand real incomes. Who was to take the hit? The tension was there in the early 1970s, obscured by the international inflation and volatile terms of trade. With those both settling down from the mid-1970s, the conflict became more evident. It was compounded by the formal and informal linkages which pervaded the pre-Rogernomics economy. (It was kind of ‘pass the parcel in a Belfast pub’; each actor could temporarily maintain their income by passing their loss on to others who, through the linkages, did the same.)

Certainly, monetary policy was permissive. The tighter stance necessary to kill inflation would have collapsed the economy. In the late 1980s and early 1990s the linkages were broken with labour and beneficiaries taking the income cut required by the wool price collapse. (Holders of wealth invested in fixed-rate interest assets, especially pensioners, suffered more in the 1970s, when interest rates were controlled to well below the rate of inflation.) Thus we were able to follow the disinflation the world economy was undergoing in the late 1980s and early 1990s.

I don’t discount monetary policy, especially the exhortation. If everybody was convinced of the effectiveness of monetary policy on the price level, then expectations managed by exhortation would have some effect. But witchcraft can also have some effect if enough people believe in it.

Since the 1990s, inflation has on the whole been benign up to the last few years. But it was benign between the mid-1950s and mid-1960s, even before monetarism was articulated.

What Next?

I take the view – that British tradition coming to the fore – that the primary role of a central bank is to maintain order in the monetary system. (I accept that initially the Bank of England financed the king’s wars and whores.) Major interventions for this purpose are required only occasionally, although there are prudent measures to be taken in between (and the RBNZ takes them).

One of the ways that order is maintained is by shaping interest rates. Currently the short-term ones are set through the RBNZ operating on the OCR as it targets inflation.

One way of interpreting the 1989 Reserve Bank Act is that the RBNZ should manage short-term interest rates to control inflation independently of fiscal policy. The above analysis indicates I am sceptical that it can do so with the precision and ease expected of it. But one acknowledges that if enough people believe the claim, irrespective of whether it is empirically valid, it will modify their behaviour – especially their expectations – which would have some impact on rising prices. It seems likely that as current doubts evolve, this channel will weaken.

If the RBNZ cannot target prices with any precision then how is it to set its interest rates? I have not been able to observe the Monetary Policy Committee nor are its minutes and discussions public. Here are the issues which may influence their operational decisions (as well as the rate of inflation).

1. If the primary responsibility of a central bank is order in the money markets then they have to set interest rates with this in mind. During a crisis, such as the GFC, this becomes a major consideration. Arguably then, the interest rate settings were to maintain monetary order, even if they promoted inflation. (As an aside, what happened to the Silicon Valley Bank is instructive. My impression is that it would not happen here because of the close supervision of the RBNZ over our commercial banks.)

2. In more normal times interest rates cannot diverge too far from international rates, since that could lead to domestic monetary turmoil as financial entities change their portfolios.

3. I suspect that lurking behind the policy thinking has been the stability of the exchange rate which, of course, affects the level of prices. (In the first part of the postwar era, in an era of fixed exchange rates, the Bank of England used to change the bank rate to deal with runs on the pound.)

4. The RBNZ takes into consideration the capacity utilisation of the economy. It could be justified by a kind of Phillips Curve in which underutilised capacity (in the original Phillips curve it is  measured by unemployment) affects prices changes (in the original Phillips curve the price of labour – wages). The first economists to use prices changes on the vertical axis, were Paul Samuelson and Robert Solow; their version was once known as the Samuelson-Solow curve.) However, managing capacity utilisation could also be interpreted as the countercyclical macro-management of Keynesian economics, except that in the past it was done by fiscal policy and odd interventions (such as hire-purchase regulation) rather than monetary policy. Muldoon referred to it as his ‘fancy footwork’; it is now the Governor of the RBNZ who dances.

My suspicion is that in practice all of these dimensions plus inflation are taken into consideration in the setting of monetary policy. The balance between them probably changes at various times.

If this is correct, the performance of the RBNZ needs to be judged not just by how well it attains the inflation targets set by the Minister of Finance.

For those who are horrified that the RBNZ is not following the remit of the 1989 Reserve Bank Act that it should focus on price stability (there is a clause in the act, though, which also charges the RBNZ with maintaining order in the monetary markets), I remind them that the earlier (1964) RBNZ Act required the Reserve Bank to maintain price stability and full employment. It failed miserably in the 1970s and early 1980s. No governor was sacked or incarcerated for this failure. At the time it was accepted that the RBNZ was being directed by law to do something it could not achieve. I am casting similar doubt on the 1989 act.

Final Thought

In the 1950s and the early 1960s macroeconomic management had as an credible outcome as it had in recent times. But it certainly did not use the overt paradigm on which the 1989 framework was based – it did not exist then.

How New Zealander’s Health Compares to the OECD’s

This entry was posted in Health, Statistics on by .

This is an exploratory study and may be of little value.

            By way of background, I observed a Kings Fund study which ranked the British health system with a group of other affluent OECD countries. I thought it would be interesting to do this for New Zealand. I got deviated when I found an OECD data base it used with more than 10,000 lines of data. (Actually bit too many from my PC RAM to handle comfortably. It was not the only data source the Kings Fund used although often New Zealand was not in the others (nor in every area of the OECD data base). So I concentrated on the OECD data base.

            Another concern was that ranking has its limitation. It does not discriminate between a couple of athletes with a millisecond between them and a couple with an hour. So, I have used the proportion of the mean of those OECD countries with records.

            I am not sure whether what I have done is useful. In fact, I have only used about 40 percent of the entries – the calculation is rather tedious. If the tabulation of any use, I could do the remaining 60 percent which are more health conditions.

The source articles are:

Anandaciva, S. (2023) How does the NHS compare to the health care systems of other countries?

OECD (2023)  Data catalogue. https://data.oecd.org/

The Kings fund reference is here

This paper explores the New Zealand dimension of an OECD health data base. It takes each item and locates New Zealand in the population of OECD countries who report on the item – not all of whom doing (including, sometimes, biggies like Britain and the US) – by its proportion of the mean of the group.

Note that while the OECD does its best to have comparable data, individual data points may be idiosyncratic reflecting reporting standards and practices. For instance, the Netherlands reports a dementia rate of 1.6 per 100,000, well below the 34 per 100,000 for the group; its Alzheimer’s rate is 1.0 against 12.6 so it does not seem to be a categorisation difference.

Note that New Zealand does not report for some categories such as for colorectal screening. (Does the MoH not having the data?) Nor some resource utilisation rates (such as doctor consultations).

There is data going back to 2002 but it is not always as complete (and probably beyond my RAM).

I’ve tabulated about 40% of the table below, stopping because I am not sure how useful the exercise is (it is certainly time consuming). The remaining 60% reports other health conditions – the last are about pregnancy.

As I computed, I became increasingly unsure about the significance of the data, especially for the health conditions. Most show the New Zealand proportion below the OECD average, but it could be due to

            – recording failure (although less likely for death records);

            – categorisation differences;

           – differences in age structures between the countries (NZ being younger than many reduces prevalence of conditions associate with aging);

            – differences in treatment (and treatment success);

            – differences in prevention programs (note for instance NZ is low on uterine cance and high on cervical screening);

            – we are under diagnosing relative to OECD average (less likely for deaths);

            – other differences I havn’t thought of.

APOLOGIES FOR THE TABLE LAYOUT

NEW ZEALAND 2021 (unit) OECD NZ % of OECD

Immunisations
Diphtheria, Tetanus, Pertussis (% Children) 94.5 97%
Measles (% Children) 94.2 97%
Hepatitis B (% Children) 74.3 99%
Influenza (%>65) 53.6 136%

Breast cancer (females% 50-69) 53.0 126%
Cervical cancer (females% 50-69) 51.1 136%

Hospital

Inpatient care discharges (all hospitals per 100,000) 12943 98%

Inpatient care stay (all hospitals average days) 6.3 74%

Curative care (discharges per 100,000) 12452 94%

Curative care bed days (per capita) 0.78 64%

Curative care stay (average days) 6.6 67%

Infectious parasitic diseases (per 100,000) 320 95%

Intestinal except diarrhoea 46.5 125%

Diarrhoea and gastroenteritis 49.4 17%

Tuberculosis 9.0 49%

Septicaemia 76.6 154%

HIV 2.9 3%

Other 132.7 87%

Neoplasms (per 100,000) 1224 59%

colon rectum anus 115.8 63%

trachea bronchus lung 97.7 46%

skin 33.5 113%

breast (females only) 170.0 62%

uterus (females only) 63.3 60%

ovary (females only) 42.4 39%

prostrate (males only) 104.7 61%

bladder 58.1 39%

other malign neoplasms 466.5 67%

carcinoma in situ (females only) 17.1 125%

benign colon, rectum, anus 20.9 46%

leiomyoma of uterus (females only) 76.0 38%

other benign neoplasms or uncertain unknown 162.4 46%

Diseases of blood and blood forming organs (per 100,000) 114.7 83%

anaemias 80.6 77%

other 32.5 101%

Endocrine, nutritional and metabolic diseases (per 100,000) 282.7 87%

diabetes mellitus 108.4 95%

other 174.4 81%

Mental and Behavioural Disorders per 100,000 600.7 81%

Dementia 34.5 125%

Due to alcohol 102.0 55%

Due to pyschoactive substance 44.7 81%

Schizophrenia etc 117.0 105%

Mood (affective) disorders 117.0 80%

Other 177.0 77%

Diseases of the nervous system 384.7 89%

Alzheimers 12.6 38%

Multiple sclerosis 12.5 27%

Epilepsy 68.4 77%

Transient Cerebral Ischaemic Attacks & related 49.0 131%

Other 239.4 90%

Notes on Tāone Hapū – Māori Gangs

This entry was posted in Maori, Social Policy on by .

Commentary: Aotearoa New Zealand Journal of Social Issues, Vol. 3 No. 1 (2023)

Abstract

This paper aims to promote discussion on the complex issue of Tāone Hapū (Māori Gangs), recognising the substantial literature which already exists but adding two further directions which tend to be downplayed:
– while it is accepted that the urban Māori migration was traumatic, that Māori have been adapting successfully to their new circumstances is frequently overlooked;
– one of those adaptations was Tāone Hapū – Māori Gangs.
The paper argues that there is a need to reframe the analysis of Tāone Hapū towards a sociological and anthroponomical perspective as a social form responding to the trauma of Māori urbanisation and the resulting social pathologies rather than to focus only on their own difficulties – especially criminality.

Keywords

Māori urbanisation, Gangs, Tāone Hapū, crime.

The Urban Migration of Māori

Heke Tangata (2018) records the postwar Māori migration from the rural outback of New Zealand to the large urban centres. The analysis is extended in Chapter 36 of Not in Narrow Seas. (2020). While I have continued to explore the issue, my thinking was accelerated recently by the statistical work of Len Cook on incarceration rates of Maori and non-Maori cohorts through time.

Cook (2023) found that the rates of Māori imprisonment peaked in the 1970s and 1980s but have fallen dramatically for more recent cohorts. Māori rates are still higher than non-Māori rates but the relativity has also fallen markedly. (The aggregate rates remain high because older cohorts have high imprisonment rates.)

The peaking and recovery suggests the following. Māori were ill-prepared for their migration into the urban centres. Their rural lifestyles were different, their skills were appropriate for country living but not particularly relevant for urban employment, their education attainment was not high (there is a long history of criticisms of Māori rural education), their health indifferent (as indicated by life expectation) and they were poor, lacking assets (which affects access to housing). Institutions central to their rural life did not exist in the cities. Indeed, the move often broke up existing social networks.

To compound the difficulties, about the time or shortly after when many Māori arrived in the cities, the New Zealand labour market moved from its exceptionally low levels of unemployment in the postwar period – with its high demand for unskilled workers – to more moderate levels, which would impact most on demand for the unskilled. (The structural shift in unemployment seems to have occurred in about 1968, shortly after the 1966 wool price collapse, and became more serious in the late 1970s.)

The inevitable consequence of such a migration was social disruption and dysfunction, evident in high youth pregnancy (especially outside stable families) among Māori women and high criminal behaviour among men. I have not been able to find a suitable data base to explore the former (or, better still, find someone who has done it already). But Cook’s work on Māori incarceration rates is very useful for exploring the latter.

It points to rising Māori criminality as a consequence of the disruption from urbanisation. Crime was attractive to Māori not just because of the social dysfunction but because it offered a more remunerative form of employment than poor quality work in the formal labour force with its intermittent unemployment. (The rising availability of drugs at this time added to opportunities.)

As Cook shows, shortly after the migration was in full flight Māori imprisonment rates rose. On the whole it continues to be relatively higher than that of non-Māori as the cohort ages, apparently because the experience of prison leads to further imprisonment later in life.

Post-Migration Adaption

Even more intriguingly, the Cook data shows that Māori incarceration rates have been falling for recent cohorts. It is also true for non-Māori, but the fall is not as fast as for Māori, which suggests that their (relative) fall may not be entirely due to changed penal policies.

While Māori may have arrived in our cites into disrupted and dysfunctional living conditions, we might expect some adaptation over time and generations. In which case, social malfunctioning such as criminal behaviour would decline, which would (partly) explain the falling relative incarceration rates.

While it might be obvious that urban Māori would adapt to their new circumstances, the degree and rapidity of adaptation is not so predictable. At the very least, there would be new social networks as they settled into urban life, their children would receive better education than their parents had in rural areas, and in employment they would obtain on-the-job skills to replace rural ones.

There has also been the development of various Māori-specific institutions including urban marae, some refocusing of the Māori Women’s Welfare League to urban issues (when it was formed in 1951 it was conceived as rural support), kohanga reo, the Māori broadcasting network, Māori Urban Authorities … (Recent initiatives for whanau to take over responsibilities from Oranga Tamariki may be another instance.)

Another adaptation was the creation of what are known today as ‘Māori gangs’.

Gangs in An International Context

Newbold and Taonui (2011) place New Zealand gangs in an international context:
The modern gang is often linked to urban poverty, and social exclusion on the basis of class, religion, or ethnicity. Gangs usually form among groups of young men who lead otherwise uneventful lives, but are denied decent job prospects, have poor parental role models, and have lacked structured adult involvement during their developmental years. The youth gang is a form of demonstrative rebellion by young men who feel excluded from mainstream society. Gangs provide these men and their female associates with a sense of family and belonging that has frequently been absent from their childhoods. Membership gives meaning to life, shelter in times of need, and protection from other gangs and from abusive or predatory adults. Gangs also provide cheap drugs and alcohol, parties, and involvement in various forms of criminal activity.

There has been a tendency – especially by the general public – to compare gangs with foreign groupings such as the mafia. Local gangs drawing inspiration for overseas counterparts have chosen foreign names for themselves – such as ‘Mongrel Mob’ – thereby reinforcing the public perception of them as being alien. But we need to see Māori gangs as an indigenous response to indigenous situations.

Māori Gangs – Tāone Hapū

The informed literature on Māori gangs tends to focus on their criminal and related aspects. (An excellent summary is Gilbert (2013) – although there have been numerous smaller studies since; see also Prime Minister’s Chief Science Advisor (2023).) They mention the urbanisation but do not develop its implications.

An urbanisation framework might see the gangs as urban forms which evolved to substitute for the rural networks that Māori left behind. Typically, the rural networks would be hapū which were genealogically connected communities of up to about 150 living in close proximity and offering social and economic support within the group. Their urban equivalents are unlikely to be as genealogically connected. (Not quite as an aside, during the Musket Wars it was not uncommon for two hapū from the same iwi – i.e they were related – to clash.)

This suggests that we might treat Māori gangs as urban (or town) hapu – tāone hapū. (They exist in localities but have connections with other tāone hapū elsewhere. Perhaps these broader coalitions of chapters – such as the Mongrel Mob’s – might be thought of as tāone iwi.)

There is a hint of how the conventional urban forms – nuclear families – can fail and gangs be an alternative from a series of interviews of women who joined gangs. Dennehy (2000) observed that
For many, gangs were an escape from the traumatic family circumstances. Gangs provided a form of protection from domestic/family violence, and physical/sexual abuse. For others, gangs offered excitement, fun and adventure.
(Dennehy concluded that ‘[f]or most of the women interviewed, however, their escape from abuse or drudgery turned into a cavern of despair.’)

This approach is not to ignore that many tāone hapū have been involved in criminal activity (and inter-hapū strife). As already explained, that too was a consequence of conditions resulting from the urban migration. What we do not know is how important crime has been in the life of the gangs; the importance probably varies between tāone hapū and has varied over time.

Unfortunately, their criminality has become most prominent in the public mind and it characterises the majority view of tāone hapū. The public might well be astonished by the report of Winter (2000):
In 1992 the Mongrel Mob Advisory Panel (MAP) was formed to provide Mob members with the means of pursuing ‘legitimate channels to success’ through better access to social services, employment, recreation, education, and vocational training. MAP provided assistance even to Mob members who were in prison. While the MAP ‘positive development’ initiative has had some success in reducing offending and improving the quality of life for its members, desistance from crime by gang members is dependent upon their being allowed the opportunity to find a place within society. Reconciliation and healing require a commitment on both sides.

In contrast the public tends to see gangs only in terms of crime and violence. For an example the leader of the opposition, Christopher Luxon, who is both a significant opinion former and sensitive to public opinion, stated ‘that’s not an excuse for saying you don’t be tough on crime and tough on gangs, you need to … have both stick and carrot, it can’t just all be carrot.’ (5 July, 2023) To see the inherent mislogic, observe that there are criminals in the National Party (and in all the other political parties). It does not follow that in order to be tough on crime, we should be tough on National.

The Parliamentary Library (2019) reports ‘Historically, suppression and intervention strategies have been used to combat New Zealand gang problems.’ Newbold and Taonui (2011) add ‘prevention’. The strategy closest to that reported by Winter hardly appears.

In 2014 the Government announced the Gang Action Plan with four initiatives:
– A multi-agency Gang Intelligence Centre led by Police to collect and combine intelligence on real-time gang activity to support investigation, prevention and enforcement, while identifying vulnerable children and family members who may need social service support;
– Work to refocus existing social initiatives, and develop new programmes, to address inter-generational gang life, to support families and members turn away from the gang lifestyle, and to help support communities with a large gang presence, by reducing gang tensions;
– Establishment of two multi-agency dedicated enforcement taskforces (the Outlaw Motorcycle Gang Border Protection Taskforce and Criminal Asset Confiscation Taskforce);
-Strengthen legislation.

Even the second initiative, which is the most ‘interventionist’, fails to recognise the possibility that gangs are a ‘legitimate’ social form fulfilling social functions where other social institutions have failed. Basically, gangs are seen as social pathology, rather than seen as a response to social pathology. The focus is on their suppression.

The same issues occur in Toward An Understanding of Aotearoa New Zealand’s Adult Gang Environment. (Prime Minister’s Chief Science Advisor 2023) There is much in the report to be commended. However its what to do list only considers prevention (discouraging children and youth from joining gangs), suppression (attempting to stop gangs from existing), supporting exiting from gangs, and what it calls ‘desistance’ (discouraging young people from joining or taking up criminal activity). The perspective is that the gangs are a bad thing with little attention as to whether they are an integral urban form and the extent and role of criminal behaviour involved with them.

The approach involves the underlying assumption that other urban forms are functioning satisfactorily and do not need attention. That is not what the young women which Dennehy interviewed reported.

What Next?

The inevitable conclusion is that we need to know more about tāone hapū, particularly approaching the issue from a sociological and anthropological rather than a criminological perspective. We especially need to know a lot more about their non-criminal activities and its relative balance with criminal activities. Moreover, we need a breakdown of those activities. While not condoning mild violence it is very different from, say, drug dealing.

In the interim, it might be worth attempting to change general public perceptions, as I have done here by referring to ‘tāone hapū’ rather than ‘Māori gangs’, although effective rebranding is not easy.

For unless the public perception changes, we are left with a distorted view of what tāone hapū/Māori gangs are, which is of little value to a healthy society or addressing the real issues.

Selected Bibliography
Cook, L. (2023). ‘Insights from Statistical Trends and Patterns relating to Youth Justice: 1911 – 2021.’ Aotearoa New Zealand Journal of Social Issues, 3(1).
Dennehy G. (2000) Troubled Journeys : An Analysis of Women’s Reality and Experience Within New Zealand Gangs.
Dennehy, G. & G. Newbold (2001) The Girls in the Gang.
Easton, B. (2018) Heke Tangata.
Easton, B. (2020) Not in Narrow Seas.
Gilbert, J. (2013) Patched: The History of Gangs in New Zealand.
Newbold, G. & R. Taonui (2011, revised 2018 and 2020) ‘Gangs’, Te Ara – the Encyclopedia of New Zealand.
Parliamentary Library (2019) Youth Gangs in New Zealand.
Prime Minister’s Chief Science Advisor (2023) Toward An Understanding of Aotearoa New Zealand’s Adult Gang Environment.
Winter, P. (1998) ‘”Pulling the Teams Out of the Dark Room”: The Politicisation of the Mongrel Mob’ in K. & C. Hazlehurst, eds, From Gangs and Youth Subcultures: International Explorations.

The original publication is here.

What the hell happened at Waitangi?

This entry was posted in Governance, History of Ideas, Methodology, Philosophy, Maori, Political Economy & History on by .

Review in ‘Newsroom’ 9 May, 2023
In 1972, The New Zealand Journal of History published the article “Te Tiriti o Waitangi: Texts and Translations” by Ruth Ross (1920-1982). Its impact continues 50 years later, and is likely to remain significant in another 50 years. It’s one of the most influential pieces of work by a New Zealand historian, not only for its impact on our understanding of our history but because of its role in establishing the Waitangi Tribunal. However, when the work on the article had first been done two decades earlier, it had been dismissed by historians as of no great significance. The new book A Bloody Difficult Subject: Ruth Ross, te Tiriti o Waitangi, and the Making of History by New Zealand historian Bain Attwood, professor of history at Australia’s Monash University, tells the story of the paper, traces its consequences and raises more general questions about the way histories of Te Tiriti and related texts have been written during the last 50 years and the implications for the history profession.
Ross had been commissioned by John Beaglehole in 1953 to write a new introduction for a government republishing of the Facsimiles of the Declaration of Independence and the Treaty of Waitangi. Ross tackled the task by treating the documents not as sacred texts, but as human documents, written by humans in a context which can analysed in a scholarly manner (rather like the German theological scholars did to the Bible at the beginning of the 19th century). She spent a lot of time rummaging around in archives. From Attwood’s description of the period, this appears to have been unusual.
Ross concluded that there was, in fact, no Treaty of Waitangi. There was certainly Te Tiriti o Waitangi, a document signed at Waitangi on February 6, 1840. But on that day there was no English equivalent which was a translation of Te Tiriti. I remember being astonished by her conclusion when I first read her paper. I was chasing up the meaning of ‘taonga’ for a Waitangi claim. Until then, I had believed the standard story that there were two documents on signing day of roughly equivalent status. (International law gives precedence to the one in the indigenous language.) But there wasn’t one in English. To use the term ‘Treaty of Waitangi’ as if it existed in 1840 is a dead giveaway that the user is 50 years out of date.
Governor William Hobson forwarded five different English versions to his superiors in Sydney and London, which surely suggests he did not have an authoritative text. Shortly after the signing, the US consul, James Clendon, hunted around for an official English text but no one could provide it. Those translations of Te Tiriti, made for land dealing purposes in Auckland a decade later, would have been quite unnecessary if there were an official English language version of Te Tiriti.
I went through a careful account of the drafting of the text. What is called the ‘English version’ is one of the later drafts; it may not even be the last English draft (which has been lost if it existed). We know that the last English draft was translated into Māori by missionary Henry Williams and his son, and presented to rangatira at Waitangi on January 5. They objected to it. That night the Māori text was changed. We do not know what was revised. Ross thinks it may have been to change the term ‘kingitanga’, the word used for ‘sovereignty’ in the 1835 Declaration of Independence, or possibly ‘mana’, to ‘kawangatanga’. It would have been a minor change for the British but it would be a massive change for Māori (and for us). They signed the revised treaty on the following day.
(The treaty signed by Māori at Waikato Heads – one of the five versions in English which Hobson filed – is often labelled as the ‘Treaty of Waitangi’ as in the Treaty of Waitangi Act 1975. However, whatever a parliament may put in a statute, it cannot change the facts of history.)
Ross wrote in her summary, “The [Māori and Pākehā] signatories of 1840 were uncertain and divided in their understanding of [Te Tiriti’s] meaning; who can say now what its intentions were? … However good the intentions may have been, a close study of events shows that [Te Tiriti] was hastily and inexpertly drawn up, ambiguous and contradictory in content, chaotic in its execution. To persist in postulating that this was a ‘sacred compact’ is sheer hypocrisy.”
She presented her findings at a 1956 seminar at Victoria University College. The reaction was scornful. Attwood writes, “Its members regarded her approach to the Treaty as idiosyncratic and dismissed it.” Ross said that historian Mary Boyd, who was a close friend, “told me my approach was a waste of time” and “dismiss[ed] my preoccupation with the text as ‘historically worthless’.”
Ross told the seminar she had just found one of Hobson’s proclamations of May 21, 1840 in the Dominion Archives. She recalled that “the whole gang were up in arms. … Such a proclamation did not exist – that was final … I didn’t know what I was talking about, such a proclamation did not, repeat not, exist.” Ian Wards, Research Officer in the War History Branch, came to her rescue; he had seen the document in question. He too rummaged in archives.
Attwood portrays Ross as lacking self-confidence. It made her vulnerable to criticism, but she also possessed a steely resolve to seek and publish the truth. She said she found studying the treaty “a bloody difficult subject”; she could be too. She also suffered the handicaps of a woman born in 1920 in modest circumstances. Attwood points out that Beaglehole never seems to have encouraged any of his “Beaglehole’s babies” – talented women students, all of whom would make sterling contributions to the study of New Zealand history– “to go to Oxford, Cambridge or London to do a doctorate, as bright young men were at this time”.
The reactions of the seminar provoked a personal crisis. She gave up the commission to write the introduction, retiring to the domesticity of a teacher’s wife (at first in the Hokianga), bringing up two children, tapping away on a typewriter for School Publications.
But during the 1960s the ‘Treaty of Waitangi’ was sneaking into the public consciousness, and in 1972 Ross spoke to another Wellington seminar. This time it was more warmly received. Keith Sinclair – another rummager – invited her to submit the paper to the New Zealand Journal of History. After some revisions the paper was published and, as they say, the rest is history.
That includes a contribution from Ross to the Act which set up the Waitangi Tribunal. It leads Attwood to a long discussion of the problems that historians have had working with the Tribunal and the broader implications for history writing generally; there are six or more books on the topic by some of the most senior members of the profession.
One of Ross’s most important conclusions is still not popularly understood: that Māori and Pākehā “signatories of 1840 were uncertain and divided in their understanding of [Te Tiriti’s] meaning; who can say now what its intentions were?”
I’d be astonished if Māori agreed among themselves about what they were signing. I doubt Hobson had the same understanding of its meaning as James Busby and Williams – or even whether those two agreed. We may never know. They are long dead and there was little contemporary documentation (some has been lost). One hint comes from the ‘unofficial’ Clendon back-translation which he commissioned from (almost certainly) Williams; it indicates what the missionary thought the Māori text said. It’s the closest we have to ‘the English version of Te Tiriti’.
No doubt Hobson thought he was fulfilling the Colonial Office instructions. But they were loose, and open to wide interpretation. We know this from the ‘Unsigned Treaty’ of the Governor of New South Wales, George Gipps, who was responsible to Britain for New Zealand at that time . In February 1840 he offered a treaty to some rangatira who were visiting Sydney. It said that they were to cede sovereignty in exchange for becoming British subjects, a sort of ‘you are so lucky to agree to allow us to take over your country’. Wisely, the rangatira refused to sign. If Hobson thought he was implementing the Colonial Office instructions, so did Gipps.
Hobson must have left Sydney with views similar to Gipps in the unsigned treaty. But following discussions with Busby and Williams at Waitangi, he changed his mind, leading to Te Tiriti with its rather different approach. In his book The English Text of the Treaty of Waitangi, Ned Fletcher says of the Unsigned Treaty “its language and effect have similarities to the Treaty drafts”. But there is a distance as wide as the Tasman Sea between the spirit of the Unsigned Treaty and the spirit of Te Tiriti. (Fletcher also fails to observe that Robin Cooke, while President of the Court of Appeal, observed “[a]s is well known, the English and Maori texts in the First Schedule to the Treaty of Waitangi Act 1975 are not translations the one of the other and do not necessarily convey precisely the same meaning.”)
There is a critical shift here. Ross’s story gives Māori agency; indirectly through Busby and Williams responding to what they thought were Māori circumstances, and directly when Māori rejected the text on February 5 which resulted in at least one change to make it acceptable to them. Fletcher does not give them agency.
It is ahistorical to ignore Ross’s caution about the lack of agreement by the Waitangi participants on the meaning of what was being signed. We can seek to understand what a particular participant thought but that is very different from a supreme court of popular opinion seeking some original intent in a treaty. That path leads through a desert of another 183 years. As long as we trek down it, we will fail the real task: what does Te Tiriti mean for us today? We may no longer see it as a sacred text but it remains of considerable significance to Aotearoa New Zealand, today and in the future. Ruth Ross would agree.
‘A Bloody Difficult Subject’: Ruth Ross, Te Tiriti o Waitangi, and the Making of History by Bain Attwood
The original publication is here.

Notes on Targeting

This entry was posted in Macroeconomics & Money on by .

Circulated 13 April 2023

There is a fetish for setting performance targets in, among other places, the education and health system. This note draws on economists’ experiences to caution about their use, and illustrates how this has mattered in the health system.

The foundation principle is Gilling’s Law which states ‘how the game is scored determines how the game is played’. Set out by Don Gilling (an accountancy professor from Wellington), a practical illustration is that by raising the value of scoring tries, rugby became a much more open, high trying-scoring game.

The next step is Goodhart’s Law which in its general form says that when a variable is targeted, its relationship with other variables changes. Charles Goodhart is a monetary economist and originally applied his insight to attempting to target the quantity of money to control prives. What he, and others at the Bank of England, found was that the past econometric equations relating the two broke down when they tried to use them for targeting.

However, the result is quite general. It arises as follows. If you characterise a system by a set of equations and add one further equation, the system will appear to function differently despite the underlying equations not having changed. Typically, econometric equations (which are just a sophisticated form of observation) are simplifications of the complexity of the system and the apparent relations get changed.

(A comment for economists. There is talk of ‘the death of the Phillips Curve’. We would expect it to appear to break down if the management of the economy began using the curve in their settings, just as has happened with the money to prices equation.)

Gilling’s Law applies to the way the ‘game’ is ultimately won or lost. It is looser than Goodhart’s Law (i.e. the ‘shapes’), which is about a particular variable which is used to determine the game outcome. (Scoring tries does not in itself determine the game’s outcome, it is scoring more tries and conversions than the other side – and not incurring too many penalties to offset a better try record.)

The next step is about when an intermediate target is established with the target as only an indicator on the way to the ultimate target/score. For example, waiting times in the emergency department of a hospital are not, ultimately, the object of the exercise. But the longer they are, the more likely that object (the wellbeing of the patients) will suffer.

Gilling’s Law and Goodhart’s Law warn that any such target is likely to be corrupted. Patients in ambulances are held outside the point which is triggered by the target definition. They wait just as long but are not recorded in the target measure.

Or in the case of where the target is the number of surgical operations, the tendency is to do many simple ones rather than a single long complex one.

It is not surprising then, that intermediate targeting does not have a good record and is often dropped. That does not mean that we should not record the statistical indicators upon which the intermediate targets are based upon and evaluate them intelligently to see if we can remedy poor performance. But the implication is that there should be many more indicators, rather than mechanically judging performance on a handful of indicators in the way that those with a target fetish do.

The Gilling-Goodhart lemma is that intermediate targets are likely to be corrupted.

Learnings from The New Zealand Economic History of Shocks

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Working Paper for New Zealand Productivity Commission

Introduction

Unexpected shocks to the New Zealand economy are endemic. The numerous small ones have been dealt with by the local initiatives inherent in the market economy and by common sense. However, there are a few big shocks where national action has been necessary. Sometimes those actions have been reasonably successful, sometimes they have been less so. There are lessons to be learned from these experiences. The most salient is that every economy is unique and, indeed, that uniqueness changes over time. Among the particular features which characterise the New Zealand economy is that it is small, geographically isolated and has an economic structure different from most comparable affluent economies. Its political arrangements tend to be thinner, which can enable a more flexible response but which, however, often lack the depth of comparable polities. Size means its intellectual resources are thinner. Isolation has been beneficial in the past – for instance, slowing the arrival of pandemics – but with the increasing global connectivity that insulation is diminishing. Nowadays, overseas crises can arrive very quickly – financial crises overnight – and there will be less time to react. However, the disadvantages of isolation – including being at the far end of physical supply chains – remain. Sometimes the experience of other economies can be used with little adaptation; sometimes the experiences and theories that are internationally available need considerable adaptation to be applied to New Zealand. On occasions, New Zealand has failed to adapt such theories when it has been necessary; too often the analysis has been overly imitative of the United States experience. At the very least, New Zealand economics needs to pay more attention to the experiences of other small open affluent economies.

The full paper is here.

Thinking About Housing Policy

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Presentation to U3A Southland series on Housing in NZ, via ZOOM, 17 February, 2023.

Throughout my life as a professional economist, I have been challenged by the question of whether goods and services should be provided privately or publicly. I recall in the 1960s, when there were strong calls for nationalisation of many things, the then leader of the Labour Party, Arnold Nordmeyer, asking a student audience whether they wanted to nationalise corner grocers. A fair question. Grocers provided goods like food which are fundamental to living but so does health care services which are largely ‘nationalised’. Why treat them differently?

Over the years, I realised the issue was not simply a matter of who should own the business, but rather how it should be regulated; that the ownership was just one means of regulating a business or industry. At the University of Sussex, where I taught, I heard that the classic Labour goal ‘the social ownership of the means of production, distribution and exchange’, should be replaced by ‘the social regulation of the means of production, distribution and exchange’.

That gives a reason for not nationalising grocery stores. A competitive market can be a very effective means of regulating businesses. I add, sixty years on, that today corner grocery stores are increasingly being replaced by a couple of supermarket chains which compete in quite different ways from grocers so their regulation needs a different approach.

These are preliminary remarks to a paper which focuses on the regulation of the housing market, indicating that what I am about to say is set in a wider context. For it is very easy to say a particular market is special, to ignore the fact that much of its speciality applies to other markets which are treated in quite different ways, and then to advocate various ad hoc interventions which lack coherence or effectiveness. A warning though. The housing market is very complicated. I am going to have to focus on some big issues and ignore others. Fortunately this is only the first of a series, and later sessions will cover issues that I have had to reluctantly leave out.

The Time Dimension in the Housing Market

So what is special about housing? It is not sufficient to say housing is necessary. So is food, clothing, healthcare and work. The list of necessities can get very long.

One of the key elements of a housing market – what makes it special and complex – is the time dimension. I warn you that economists have a lot of problems analysing time, but so does everyone else. Perhaps we are more aware of our ignorance.

First, a time dimension comes from people wanting to live in a dwelling for a long time. It would be very inconvenient if we had to move as often as we change what we eat. Doing so would also be very expensive. A rough estimate is that by the time you have paid all the bills – to real estate agents, valuers, lawyers, movers, and allowing something for for housing alterations and the like – you will have outlayed over $30,000 to change your house. Better to stay stuck in your house.

That means households need some dwelling stability. For many that means home ownership. Most people accept that there should be some private ownership, including owning one’s house. It certainly has been a driving force in New Zealand’s evolution. Almost 200 years ago Edward Gibbon Wakefield advised, ‘Possess yourself of the Soil and you are Secure.’ At first the new settlers wanted to have their own farms; as New Zealand urbanised they wanted their own houses on their own land – usually with a garden. They can alter and extend their own home. A feature of New Zealand’s housing stock is that it is very varied – heterogeneous. Even if you put New Zealanders in the same type of houses – say terraced ones or apartments – they change them.

There are at least two public advantages for home ownership. One is that the owner – their own landlord – is likely to look after their property more than a tenant would. A second is that it requires the home owner to pay off a mortgage, thereby forcing them to save. When a person starts work their main asset is their labour power; when they retire most will have built up substantial financial and physical assets on average – around two-fifths by value are in property.

Of course there are many who do not own their own houses. That includes young people who havn’t settled down. It is often lamented that home ownership rates are falling. There are many factors affecting these rates, but the most important one is that while my generation bought their first homes in their twenties, today the equivalent generation’s purchase is more likely to be in their thirties, just as they are more likely to hold off having their children. If you compare home ownership for those above the age of forty you will find that the rates are much the same as they were in the past.

The second reason for not owning a home is those who cannot afford the deposit to buy a house. The problem they have is the lack the wealth despite, in some cases, having a good income. I am not going through a full analysis, but people frequently confuse wealth and income and in the case of the housing market they try to fix up the wealth inequality problem by supplementing income. You can be sure that if they try, they will end up with a not very good policy.

If the first time dimension issue involves people’s housing preferences of wanting to live in the same place for a while, the second big issue is that dwellings themselves exist for a long time. That means it is quite difficult to add substantially to the housing stock. Build 10,000 houses and less than 1 percent has been added to the total stock of New Zealand housing. Yet it is an enormous strain on the economy to build 10,000 houses. The strain is compounded if we decide we also need to improve the quality of the existing housing by, for example, remedying damp homes.

The Neoliberal Policy Approach from Thirty Years Ago

I illustrate the consequences of the two time dimensions by going back thirty years to the early 1990s when housing policies were dramatically changed, a change which still affects our housing policy thinking. You might summarise the new framework as Ruthanasia, presaged by Rogernomics, but in the international context it would be called ‘neoliberal’.

I have written a lot on the policy changes at the time; I do not propose to discuss all their elements; only the salient ones which frame our current policies.

Rogernomics was a response to what was widely seen as too much intervention in the economy. In my judgement the balance between private and public provisions favoured the public side of the scales more than it should. Where I disagreed with the Rogernomes is that their solutions were extreme. We can see this in what they did to the housing sector.

Neoliberals thought that the housing market could be largely left to itself, just like the markets which provide food and clothing. Because they saw no specific food policy nor a specific clothing policy, they concluded there was no need for a specific housing policy. So they heavily wound back government involvement in the housing market. I am not going through a detailed account of all the winding back of public interventions they made. I focus on the big mistakes which could be summarised by saying that they ignored the peculiarities of housing in terms of those time dimension issues

The Ministry of Housing and Urban Development

When the Labour (Ardern-Peters) Government came to power in 2017, they found housing policy was scattered across a number of departments with little coherence. One is reminded of Geoffrey Palmer’s comment about how the newly elected Lange-Douglas Government in 1984 grasped the levers of power and found they were not connected to anything.

To its credit, the Ardern-Peters Labour Government established a Ministry of Housing and Urban Development. It is easy to destroy a government department but it takes time – ten years perhaps – to build up a fully effective one. This one is only four years old. Don’t be misled by a department’s glossy presentations and flowery language; it is still settling in.

Instructively, the Ministry outcomes – how it defines it success – include ‘a self-adjusting system – The system works together and with communities to review, respond and adapt.’ The expression ‘self-adjusting’ is a signal that it accepts the neoliberal belief that a housing system can be devised so that it does not need constant intervention. I wish.

Nor does the Ministry yet seem to have compiled a comprehensive historical data base. There are a number of studies with public housing data but nothing as easily accessible on private housing. The Ministry seems to think of itself as a Ministry of Public Housing.

I give a couple of examples of where a comprehensive data base was important. The First Labour Government is acclaimed for its housing policies, which included building and renting out state houses and the State Advances Corporation lending to people to buy and own their own houses. It is often overlooked that these policies were founded on a comprehensive survey of the housing market commissioned by the preceding Coalition Government – Gordon Coates actually.

That is an example of the usefulness of a good data base. The difficulties when you don’t have one are well illustrated by the current housing market.

After the neoliberal revolution, we lost interest in having a comprehensive account of the housing market. The slogan was the market would look after itself. It didn’t. Over the next quarter of a century there was a steadily growing imbalance between housing supply and demand. There was no data bank to easily monitor the deterioration, while other policies reinforced the imbalance. (Immigration is particularly relevant here, since migrants add to housing demand.)

So there does not appear to be any government agency concerned with the whole of the housing market, despite there being considerable interaction between the public and private markets. For instance if there is insufficient public housing, some people will end up in the private sector (which includes living on the street); people buying their own houses reduces pressure on public housing; the housing construction industry provides both public and private housing.

By the time the Ardern-Peters Labour Government took over, the imbalance was evident to all. The government was deemed to be at fault, although it was obvious that the imbalance had been building up over the years and that the failures should be attributed to policy slackness on the part of previous National and Labour governments. The public outcry implied the government could fix the mess created by over-reliance on the private market for a 25-year period in, say, 25 days. Five years later the government has made some progress, but frankly, if it takes its eye off the ball, the housing situation could easily regress. Without that comprehensive data base who would know – other than those marginally housed?

The Housing Bubble

Thus far I have been talking about the stock of housing. A major recent concern has been its price and affordability. There is no problem here for a neoliberal. The right price is what the market sets, and affordability reflects scarcity. Pressed, they argue the problem was the restrictions imposed on land use by urban authorities; such planning restrictions are an anathema to neoliberals. (Recall that the Ministry for Housing is also one for Urban Development, acknowledging these concerns.)

Allow me to skip a discussion on town planning (although I footnote for a country trying to reduce its carbon footprint it is odd to be extending the urban edge when our largest permanent global warmer is emissions from cars.) I am going instead to offer an alternative to the neoliberal account which explains the housing bubble.

Speculative bubbles are common. You have met many such bubbles through your life. The Global Financial Crisis of 2008 was an example, as was the New Zealand finance companies crash about the same time. The 1987 share market crash was another example, as was the 1928 Wall St Crash, but that was before our time. There are at least two major bubbles going on at the moment – one in the crypto-currency market and one in the Chinese Financial System. There are probably others – we often find out about them too late.

Minsky’s Analysis

Hyman Minsky was not recognised until after he was dead, but today his work is considered a powerful way to understand speculative bubbles. So powerful that I am going to explain it in some detail before applying it to the housing market.

Minsky argued that ‘the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycle’. He concluded that such financial instability – and the booms and busts that accompany it – are inevitable in a so-called ‘free’ market economy – unless government steps in to control through regulation, central bank action and other tools – a policy conclusion which neoliberal economists find uncomfortable.

His key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. There are three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.

The hedge borrower can make debt payments which cover interest and principal from current cash flows from investments.

For the speculative borrower, the cash flow from investments can cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal.

The Ponzi borrower – named after Charles Ponzi who ran the famous ‘Ponzi scheme’ in 1920 – believes that the appreciation of the value of the asset will be sufficient to refinance the debt for their insufficient cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

These three types of borrowers each dominate in one of the three phases of the financial bubble.

During the Hedge Phase, banks and borrowers are cautious. Loans are minimal so that borrowers can afford to repay both the initial principal and the interest. It is the ‘Goldilocks’ phase of debt accumulation – ‘not too hot not too cold’.

The Speculative Phase emerges as confidence in the financial system recovers during the Hedge Phase. Borrowers no longer invest on the basis that they can pay both principal and interest. Instead loans are issued where the borrower can afford only to pay the interest. As the loan principle comes up for payment, they rely on being able to refinance (‘rollover’) their debt, borrowing the principal again. The decline towards financial instability begins.

As confidence continues to grow, investors move into the Ponzi Phase in which they neither pay the interest on the loans nor repay the principal. They rely on the capital appreciation from what they have invested to finance their investing.

Eventually, Stern’s law– if something cannot go on for ever, it will stop – takes its toll. The asset-price appreciation that the Ponzi investors rely upon cannot go on forever either, especially as it needs to accelerate. Some Ponzi investors withdraw, and there are not enough new investors introducing new cash to fund the withdrawing Ponzi investors. And so the bubble pops at the ‘Minsky Moment’.

After the Minsky Moment, everyone tries to get out of their investment commitments, turning them back into cash. Ponzi borrowers are forced to, because they have no cash; speculative borrowers can no longer refinance the principal even if they are still able to cover interest payments. All the borrowers have been borrowing from someone else who may be unable to recover what they have lent. The result is a line of collapsing financial dominoes, with innocent lenders suffering as well as guilty borrowers.

Not every one suffers. There are those who have taken their margin on each transaction, such as sharebrokers, investment advisers, real estate agents, investment promoters. All have an incentive to encourage speculative investment, which biases the public view towards investing in low quality activities. Others who are beneficiaries are those who invest and cash up before the Minsky Moment. There is also a more sophisticated group of investors who ‘short’ the market, that is, contracts to sell the assets at high prices after the Minsky Moment; you may have seen the film based on Michael Lewis’ The Big Short, which described it happening after the Global Financial Crisis.

The New Zealand Housing Bubble

Minsky developed his theory for financial markets which involve paper assets – such as shares. The housing market is a little different but it fits Minsky’s model well.

Today the housing market is largely funded from borrowing from banks. From the 1980s, after the financial liberalisation which, among other things, ended the trading banks having separate savings banks, the housing market was in Minsky’s Hedge Phase. The banks lending was cautious with their funds for lending largely coming from deposits and loan repayments. Mortgages were advanced on the basis that borrowers could afford to pay the interest and repay the initial principal over a long period reflecting their working lifetime.

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Minsky’s Speculative Phase began in the early 2000s, where following 9/11, the George W Bush administration flooded international markets with dollar liquidity. Our trading banks turned to those international markets for additional funds, which were used to increase the supply of mortgages.

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Some simple economics. It became easier to purchase a house because there were more funds. But the supply of housing did not increase much. So the price of housing rose. You can see the change in trend quite markedly in the graphs. Borrowers still serviced their mortgages but they were now getting a higher return from their investment in housing, from the capital gain from the faster appreciation of prices.

There was almost a domestic financial crash. In 2008, trading banks were borrowing about $30 billion a month in offshore markets, partly to increase their advances but mainly to roll over existing borrowing which was short term – three months – much shorter than the mortgage advances they were making to house owners. During the GFC, financial markets almost seized up (as the jargon would have it), that is international lenders in crisis became unwilling to roll over their past advances – to everyone, not just to New Zealand banks. Fortunately, skilled international cooperation between the central banks of the world prevented the catastrophe. If you want to see what could have happened you might look at the experience of the British mortgage lender Northern Rock (Building Society), which crashed in 2007 and had to be nationalised.

New Zealand managed to get through the GFC reasonably lightly compared to some other countries, and the rise in house prices checked somewhat.

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However after 2013 the housing market moved into a Ponzi Phase in which people were paying too much for the houses they purchased. It was partly over-confidence but nominal interest rates were low, which meant that house purchasers could service larger mortgages. Again there was not much increase in the housing stock, so the price of housing went up dramatically.

The government tried to restrain the house price rises including imposing a capital gains tax on houses which were quickly resold and loan-to-value requirements on lenders. Additionally, it ring-fenced rental income so that landlord losses could no longer be charged against other income – the capital gains they were making remained untaxed. There was borrowing guidance given by the Reserve Bank to the trading banks.

Competition among the trading banks stimulated the lending markets and house prices. Moreover the real estate industry and those advertising real estate – including their journalists – encouraged the view that house purchasing was a good investment, with the implication that it was better to purchase now than later, when prices would be higher.

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By 2021 house prices were about double what they would have been had the mild increases of the 1990s had continued.

The inevitable happened, especially when mortgage interest rates began rising following rising international interest rates. Because housing is heterogeneous by housing type and location there was not a single Minsky Moment, so house prices began to fall in different regions at different times. By the end of 2021 they were falling everywhere.

People selling houses were now taking capital losses relative to the market peak; some even sold below what they originally paid for the house. Rising interest rates mean that many mortgage holders are finding it difficult to service their debt when it has to be rolled over and have to cut back on other spending. Because the trading banks factored in their lending criteria the probability that interest rates would rise there are, currently, only a few forced house sales, but numbers are rising.

Even so, current housing prices remain badly out of line with consumer prices and affordability. One benefit is that it is easier to become a first-home owner, but for some the required debt servicing is still unaffordable, even if they have a deposit.

So the housing bubble has popped. You could criticise the government or the Reserve Bank for popping it, but it would have happened anyway – Stern’s law cannot be avoided. The longer the Ponzi Phase of the bubble lasted, the worse would be the following downturn and the more innocent who suffer. The measures that were taken to reduce the bubble, and hence the muddle which follows the Minsky Moments, were not enough to prevent it.

It is difficult for the government to soften the effects of the bust, because those that benefited from the upswing – those who sold out early, cashing up their capital gains, or who benefited from the transactions – are not going to give up their winnings. Because there was no capital gains tax on house price gains, there is no capital reserve to support those suffering capital losses, assuming they warranted such support.

Creeping Away from the Neoliberal Framework

With hindsight Minsky’s analysis is obvious – even if it was not at the time. I promise you that there will be another Minsky bubble in some financial market which will suck in naive investors. What I cannot tell you is how long the current downswing will go on, how far housing prices will fall before the market recovers.

The standard neoliberal analysis concludes market prices cannot get badly out of line with fundamentals so Minsky bubbles cannot happen; there is no need for special market regulation. They fail to heed the comments of Alan Greenspan, once chair of the American Fed (central bank), and a famous proponent of neoliberal policies for financial markets. ‘I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms … I discovered a flaw in the model.’

And so, step by step, the harsh realities of the housing market are forcing us to revise the neoliberal policy framework which was adopted in the early 1990s. We have many steps to go.

A pundit column which summarises the first half of the paper is here.

SOME BACKGROUND TO BRIAN EASTON.

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Headlines

Born March 1943 in Christchurch to Harry and Thelma Easton. Eldest of three. Keith (1944-2015), Jean (1950-)

Married Jenny in 1966. We went our separate ways from 1996. Anita (1971-); Tama (1974-)

Education

1947: Selwyn St Kindergarten

1948-1953: Somerfield Primary School

1954-5: Christchurch South Intermediate

1956-1960: Christchurch Boy’s High School

1961-63: University of Canterbury

            BSc(hons) in mathematics

            D.Sc (2003)

1964-66: Victoria University of Wellington

            BA in economics.

Employment

1963-66: NZIER (research assistant)

1966-70: University of Sussex (lecturer in economics and social statistics)

1970-81: University of Canterbury (lecturer in economics)

1981-86 NZIER (director)

1986 -: Consultant and scholar

            1977-2014: Listener Economics Columnist

            2014-: Pundit Economics Columnist

Web Items with a substantial biographical dimension

An account of my economics career

IN OPEN SEAS:

            Part I: On the Seashore: (1943-1970)

            Part II: Launched (1970-1986)

            Part III: Paddling (1986- )

Paradigms Of New Zealand Economic Growth: a Memoir

Part I

Part II

Being a Public Intellectual

Interview by David GrantBiography of A Public Historian: Brian Easton

Working with the Maori: Consultancy, Research, Friendship

Here is a description of a dispute I was involved in which says something about my scholarly style.

What Happened in July 1984: and the Aftermath

On the website are many short items which sketch out small parts of my life (and pay tribute to people I have worked with). I think of myself as a bit of a Forest Gump; we all are.

I hold, or have held, the following

Books and Monographs

Honorary Positions and Distinctions

Brian’s BOOKS & MONOGRAPHS

This entry was posted in Miscellaneous on by .

Books

The Future of New Zealand Medicine: A Progressive View (Peryer, 1974) 150pp – joint editor, with D.W. BEAVEN, and contributor.

Social Policy and the Welfare State in New Zealand (Allen & Unwin, 1980) 182pp. (Japanese Edition, 1987)

Pragmatism and Progress: Social Security in the Seventies (University of Canterbury, 1981) 128pp.

Economics for New Zealand Social Democrats (McIndoe, 1981) 156pp.

An Introduction to the New Zealand Economy (University of Queensland Press, 1982) 339pp. with N.J. THOMSON.

Wages and the Poor (Allen and Unwin, 1986) 100pp.

The Making of Rogernomics (Auckland University Press, 1989) 212pp. editor and contributor.

Unemployment in New Zealand (Dunmore Press, 1990) 191pp. with I. SHIRLEY, C. BRIAR, & S. CHATTERJEE.

The Commercialisation of New Zealand (Auckland University Press, 1997) 288pp.

In Stormy Seas: The Post-war New Zealand Economy (University of Otago Press, 1997) 343pp.

The Whimpering of the State: Policy after MMP (Auckland University Press, 1999) 268pp.

The Nationbuilders (Auckland University Press, 2001) 318pp.

Globalisation and the Wealth of Nations (Auckland University Press, 2007) 234pp.

Heke Tangata: Maori in Markets and Cities (Oratai Press, 2018) 130pp.

Not in Narrow Seas: An Economic History of Aotearoa New Zealand (VUP 2020) 682pp.

Monographs

Consumption in New Zealand 1954/55 to 1964/65 (NZIER Research Paper 10, 1967) 77pp.

Profitability and Performance in Post War New Zealand: The Impact of the Terms of Trade (Victoria University of Wellington Economics Department, 1980) 26pp.

External Impact and Internal Response: The New Zealand Economy in the 1970s and 1980s (NZIER Discussion Paper 25, 1982) 18pp.

The Impact of Taxation on Alcohol Consumption (Alcohol Liquor Advisory Council, 1982) 23pp. with L.B. KAY.

The Impact of the Public Sector Security Ratio on the On-lending Interest Rate of Finance Houses (NZIER Contract Research Unit Paper No 19, 1983) 10pp. with L.B. KAY.

By Rail or Road: A Case Study (NZIER Research Paper 27, 1983) 105pp. with P.A. MARKS.

Income Distribution in New Zealand (NZIER Research Paper 28, 1983) 281pp.

Studies in the Labour Market (NZIER Research Paper 29, 1983) 208pp. editor and contributor.

Subsidization of Urban Public Transport in New Zealand: the Economic Justification and Methodology for Apportioning Benefits (Urban Transport Council, 1984) 73pp. with C. PROPPER and N. WILSON.

Markets, Regulation, and Pricing (NZIER Research Paper 31, 1985) 142pp. joint editor with A.E. BOLLARD, and contributor.

Economy Wide Models of New Zealand (NZIER Research Paper 33, 1986) 281pp. with G.M. WELLS.

The Exchange Rate Since 1981, Performance and Policy (NZIER Discussion Paper 30, 1986) 24pp.

Is Victoria a Computable General Equilibrium Model? (PEP Occasional Paper No 88, 1986) 8pp.

The Quarterly Survey of Business Opinion (NZIER Research Paper 36, 1987) 109pp. joint editor, with R. D. BOWIE, and contributor.

The New Zealand Economic Experiment (Research Paper 174, University of Melbourne Department of Economics, 1987)

Economic Instruments for Social Policy (The Royal Commission on Social Policy, 1988).

Wage Flexibility, Wages, and Free Lunches (Research Paper 180, University of Melbourne Department of Economics, 1987) 25pp.

The Need for Magnetic Resonance Imaging Systems in New Zealand: A Preliminary Evaluation (Wellington Multiple Sclerosis Society, October 1990) 12pp. with R.D. BOWIE.

Open Growth: A Response to the Task Force on International Competitiveness (NZEU, 1990) 67pp.

A GDP Deflator Series for New Zealand: 1913/4-1976/7 (Massey Economic Papers B9004, December 1990) 24pp.

Structural Change and Economic Growth in Postwar New Zealand (Massey Economic Papers B9103, March 1991) 50pp.

Modelling Julianne’s Fiscal Routines (Research Project on Economic Planning, Occasional Paper No 99, 1991) 17pp.

The Real Wage Debate: 1978-1990 (Research Project on Economic Planning, Occasional Paper 101, 1991) 35pp.

Getting the Supply-side to Work (NZAEU, 1995) 80pp.

Towards a Political Economy of New Zealand: The Tectonics of History (Hocken Library, 1995) 29pp.

The Social Costs of Tobacco Use and Alcohol Misuse (Department of Public Health, Wellington Medical School, Research Paper 2, 1997) 36pp.

International Guidelines for Estimating the Costs of Substance Abuse (Canadian Centre for Substance Abuse) with E. SINGLE, D. COLLINS, H. HARWOOD, H. LAPSLEY, & A. MAYNARD (& R. BOWIE) 1997 71pp. (Note Second edition 2002)

The Commercialisation of Education (Central Institute of Technology, Occasional Paper No 4, 1997) 11pp.

The Economic Regulation of Tobacco Consumption in New Zealand (Central Institute of Technology, Occasional Paper No 7, 1998) 16pp.

The Economic Context of the Ministry of Consumer Affairs (Policy Paper No 4, 1998) 16pp. (primary contributor)

Metrology and the Economy (Report for the Ministry of Consumer Affairs, available at www.mca.govt.nz).

International Guidelines for Estimating the Costs of Substance Abuse, 2ed (Canadian Centre for Substance Abuse, 2002; WHO 2003) with E. SINGLE, D. COLLINS, H. HARWOOD, P. KOPP & H. LAPSLEY.

Injecting Drug Use and the Projected Costs of Hepatitis C (Report for the New Zealand Drugs Foundation, 2002)

Taxing Harm: Modernising Alcohol Excise Duties (Report for ALAC 2002)

The Economic and Health Status of Households (Report for HRC 2002)

Assessment of the Social and Economic Impacts of Gambling in New Zealand (SHORE 2009) with S. CASSWELL, E. LIN & R. Q. YOU

Ethnicity, Gender, Socioeconomic Status and Educational Achievement: An Exploration (PPTA 2013)

Work in Progress

In Open Seas: Submitted to publisher; 80,000 words.

Behind the Columns: This is professional memoir based on 100 Listener Columns and the story behind each. It is 140,000 and probably too large for publication.

I am currently writing a NZ economic history for teenagers. About 30,000? words

I am currently writing a report on a history of shocks to the NZ economy.

Brian’s Honorary Positions and Distinctions

This entry was posted in Miscellaneous on by .

Fellow of the Royal Statistical Society (1967-)

Honorary Research Fellow, Research Project on Planning, Victoria University of Wellington: 1986-2000

Downing Professorial Fellow in Social Economics at the Department of Economics at the University of Melbourne: 1987

Social Science Research Fund Committee Hodge Fellow at Massey University: 1989-

Associate, Institute of Executive Development, Massey University: 1993-2000

Honorary Fellow, Department of Public, Health, Wellington School of Medicine, University of Otago: 1993-

Senior Research Fellow in Social Policy and Applied Economics, Social Policy Centre Massey University: 1994-2000

Chartered Statistician: 1994-

Visiting Fellow in the Department of Politics, University of Auckland: 1995-2002

Professorial Research Fellow, Central Institute of Technology:  1996-2001

Associate, Stout Research Centre, Victoria University of Wellington: 1997-

Marsden Fellow: 2003-6

Adjunct Professor, Institute of Public Policy, Auckland University of Technology: 2003-

Fulbright Distinguished Visiting Fellow: 2004-

Distinguished Fellow of the New Zealand Economics Association: 2006-

Honorary Research Fellow, Centre for Social and Health Outcomes, Research and Evaluation, Massey University: 2007-     

John David Stout Fellowship: 2008

NZIER-NBR Economist of the Year: 2009

Honorary Research Fellow, National Institute of Demographic and Economic Analysis, University of Waikato: 2011-

Research Associate, Retirement Policy and Research Centre, University of Auckland: 2013-

IN OPEN SEAS: PART III: Paddling (1986- )

This entry was posted in History of Ideas, Methodology, Philosophy, Portraits on by .

Brian Easton (Journalist) Interviews Brian Easton (Economist)

Part I is IN OPEN SEAS: PART I: On the Seashore: (1943-1970);  Part II is IN OPEN SEAS: Part II: Launched (1970-1986). Part II and Part III were  going to be published as a companion pieces in Asymmetric Information but there have been no issues since August 2021

Why did you not go back into a job in a university after you left the Institute?

I applied but was never accepted. In one case I was told that I was ‘too controversial and published too much’. A strange response from a university. No New Zealand university ever made me a tenured job offer. A high-status Australian one did, but I declined because I wanted to stay in New Zealand. I have since thought that taking it would probably have been better for my wellbeing and pocket; whether New Zealand would have been better off can be debated.

So you became a consultant?

For over 30 years. Professionally, it has been an interesting life compared to being isolated in a university. But it has its limitations. You have little control on what you do; many consultants have a reputation for delivering what the client wants. Consulting can compromise your independence. During the flat-tax debate in 1988 – a crucial part of the collapse of the Fourth Labour Government – I had been commissioned to write a Listener feature on it. (Them were the days.) The client for whom I was working asked me to hold off because they thought it might undermine the standing of the work I was doing for them.

What happened?

I had already filed the story.

What do you think of being a consultant instead of an academic?

It is a matter of taste, but probably not mine. I missed colleagues. One of the joys of being an economist has been a robust debate with them – lots of disagreement, much learning, some convergence and ongoing friendships. My impression is that open debate largely died with Rogernomics and has not revived. (I have recently joined a group which meets once a fortnight for a lively discussion.)

            I missed the institutional support including the research infrastructure like libraries and computers. I missed the salary and also the status. One should not underestimate how a position in an institution gives a person a public role. New Zealand operates on the basis of ‘who you know, rather than what you know’– status over competence. Most of all, I missed working with lively young student minds, watching them develop into members of the profession.

I thought consultants were well paid?

They may be, but I chose to make just enough to support my family and use the free time to maintain the research program which I had hoped to run when I was at the NZIER.

Tell us about some of the highlights of your research programs.

I have already mentioned distributional economics. My first major discovery was that poverty mainly occurs among families with children. The basic paradigm I developed remains the standard way we measure poverty almost fifty years later (although there is an evolving one directly assessing households’ experiences and consumption which I discussed in the late 1970s). That revolutionary finding is now the conventional wisdom to the point that the initial research work is forgotten.

            A lot else came out of my distributional research. While trying to explain poverty I had to think about non-market economic activity. This was well before the popular, but uninformed, fashion to criticise GDP. It has led, among other things, to the exceptionally innovative Chapters 29 and 38 on the role of nonmarket household activities in economic developments in Not In Narrow Seas, in a book with many innovations. Another dimension will be seen in the central role the environment plays in the book.

            One stunning discovery was that I found a structural break in many economic series around 1966 or 1967. I eventually identified this as the wool price collapse in December 1966. The mechanism involves a thorough grasp of distributional economics including the terms of trade and the real exchange rate and how regulation transfers rents. Get your head around that and you begin to understand why the period after 1966 is so different from the first two decades after the Second World War.

            The economics is described in In Stormy Seas, which sets out the model of the Small Open Multi-sectoral Economy we were developing at the Institute a decade earlier. (The political ramifications are detailed in Not In Narrow Seas.) Later I enjoyed working on Treasury panels on short-term and long-term forecasts; they told me they appreciated my contribution.

            As well as working on the macroeconomics framework under Rogernomics, I got drawn into evaluating its microeconomics. That led to The Commercialisation of New Zealand. We have never worked out a coherent regulatory framework. Hence the ‘leaky buildings’ saga. We are better at providing ambulances at the bottom of the cliff than fences at the top. Even then, the ambulances are often late.

            Inevitably, much of my consultancy was about market regulation. Particularly satisfying was the work I did on tobacco and alcohol. On one occasion, working on alcohol taxation, I identified an anomaly which meant that light spirits – flavoured raw alcohol – could be sold so cheaply that an hour’s wages provide enough liquor to kill oneself; as happened to two young men while I was investigating the issue. I took the finding to the Treasury who were aghast at the tax loophole. Within months they removed it and light spirits disappeared from the shelves. The Alcohol Advisory Council said they never had a such a quick turn around on a policy.

            Devising a health system is a challenge of advanced regulatory design. I got involved because I was teaching medical students at the Wellington School of Medicine. I am proud of my contribution as economic adviser to the Campaign on Public Health, which successfully resisted the proposed privatisation of the public health system in the early 1990s.

            I also evaluated healthcare delivery. The greatest achievement may have been my contribution to the WHO report International Guidelines for Estimating the Costs Of Substance Abuse, which anchors social-costs studies into cost-benefit analysis and microeconomic theory. It has not had a lot of impact in New Zealand where some of the cost-benefit, social-cost and social-investment studies stray a long way from orthodox economic theory.

            On the basis of my Commercialisation book I was asked to teach public policy to political studies students at Auckland University. This led to the updating The Whimpering of the State; Policy After MMP. (I am just publishing a related paper twenty years later.) I have a distinctive approach to policy studies which focuses on how policy is made – the policy process as political economy. I don’t think studying it is popular, here in Wellington anyway, because it involves assessing what actually happened and usually the process is – as Bismarck described it – like making a sausage. So the kudos goes to those who focus only on the end product. Outside Wellington, it is hard to get a grasp of the details. (You can see this by comparing my later work with Social Policy and the Welfare State, which I wrote when I was still in Christchurch, although Pragmatism and Progress: Social Security in the Seventies, published about the same time, is a precursor of the political economy approach.)

            Another consultancy area was working with Maori, especially over Treaty claims. I really enjoyed that. It also opened me up to different parts of New Zealand’s regions and history which economists don’t usually come across. I even published a scholarly paper on Te Tiriti o Waitangi which came out of wrestling with the property rights involved in one claim. My latest contribution to Maori development is Heke Tangata: Maori in Markets and Cities.

            On reflection, I am surprised how involved I was in historical research; there are over 300 items on my website with a ‘history and political economy’ tag. It comes from my general interests, from an applied economist using history to test theories but also from the recognition that if you want to understand anything you need to understand its origins. So most of my studies include a historical dimension. For instance, Policy and Pragmatism goes back to the 1890s (because of recent scholarly work I’d now go back even earlier).

            I also wrote The Nationbuilders, trying to understand how New Zealand thinking evolved up to 1984. It later led to my curating a New Zealand Portrait Gallery exhibition, 60 Makers Of New Zealand: 1930-1990, covering much the same period but with a wider remit.

            The Marsden Fund awarded me a grant which enabled the writing of Globalisation and the Wealth of Nations. (I learned some new bits of economics in the process: the power of the economies of agglomeration and the bizarre way they work. They are not yet central in New Zealand’s economic thinking, although the Treasury picked them up in the late 1990s when they were focusing on the future of Auckland.) International experts who read the book said it was an important contribution, but the Marsden Fund did not extend the grant – apparently they had higher priorities than the New Zealand economy in an international context – so I was unable to continue the analysis or promote it.

            I looked around for an alternative project which would not be so expensive – not involving overseas travel. Perhaps it was inevitable I would write a history of New Zealand; I had been reading about it since I was in primary school. By picking up bits of funding here and there – I am very grateful to all of them – I wrote Not in Narrow Seas: The Economic History of Aotearoa New Zealand. It is a huge book starting 650 million years ago and it draws on most social sciences. It also contains a lot of economic theory. The publisher’s blurb on the back cover says that it is ‘my greatest work, the fruit of a lifetime of research and reflection’.

            In a way, I hope that is not true. As my Pundit columns indicate, I am still researching, learning and reflecting. Currently I am working on my next book In Open Seas, which is forward looking.

            I suppose I should finish a list of major achievements by mentioning my columns. There are over a thousand of them. I was greatly touched by a scholarly historian who went through them over his period to get a feel about what was going on. They show developments in my thinking, say, about wellbeing which goes back to the 1960s, and on the changes in public administration, which begins with my identification of generic management in the early 1990s.

Whew, Is That All?

The highlights. I left out many other things I have done including some theoretical innovations. I am very proud of many items on that list, even if I have had to omit them here. Most are listed on my website www.eastonbh.ac.nz and on www.pundit.co.nz but both are bits of rabbit warrens, I’m afraid.

In Summary?

While I’d like to think that my writings have already made a difference, and will make a difference, to New Zealand long after I am gone, I am not optimistic. We have painted ourselves into a problematic development corner; that is a message of my latest book, Not in Narrow Seas.

That is a downbeat to finish on. Can you end a little more cheerfully?

Bruce Jesson, reflecting on his life said ‘[i]f you had said to me, when I was 17 or 18, “you’ll spend your life writing, you won’t make any money, you’ll publish magazines, you’ll publish books,” I’d have thought: “Wonderful. What better a way to spend your life?”’ My sentiment too.