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Insights 27: 21 July 2017
Next Generation Debates: Wellington Semi-Final
 
New Zealand Initiative Research Plan 2017 - 2020
 
Next Generation Debates: Auckland Semi-Final

Things I learned at the Economistsí Conference
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
If your main exposure to economics is hearing bank economists talk on morning radio, you might not have the most accurate picture of what economists do. Trying to guess what interest rates might do, or telling stories about the latest moves in the stock market, are not really what economics is about.

To get a better picture, you could do worse than attend the New Zealand Economics Association’s annual conference. This year’s conference covered a lot of work on important policy questions in areas ranging from housing to education. Here are just a few of the things I learned.

First up, every new migrant to Auckland is associated with about $60,000 in new construction expenditure. Just think about the improvements in Council ability to handle the infrastructure costs of migration if they received the GST on that expenditure.

Switching over to the minimum wage, the most recent hikes did little for those working less than 30 hours per week because the gain was clawed back through Working for Families.

Increasing the minimum wage might be more helpful for the government’s balance sheets than for many of the households the policy intends to help.

And it looks like most differences in ethnic achievement at university are explained by differences in academic achievement at NCEA Level One. Improving the university statistics then requires fixing things well before the students reach University. The Initiative’s recommendation to charge interest on student loans and put the money towards improving secondary schools could help with that.

Waikato University’s Professor John Gibson was elected Distinguished Fellow of the Association this year. His keynote address reminded economists to pay more than lip-service to decisions over quality of goods.

When we take quality decisions seriously, we find that consumers are resilient to price changes.

Gibson showed that when the price of rice jumped in Vietnam, consumers switched over to cheaper varieties that were a bit less tasty but just as nutritious. Vietnam’s export ban was not needed.

Gibson also showed that when consumers respond to soda taxes by shifting to lower cost brands, it winds up being counted as a drop in soda consumption in public health studies. Why? Spending dropped, and too many studies guess at consumption by counting spending.

Economics is about more than just interest rates – and is rather more interesting too.
 


Quis custodiet ipsos custodes?
Amy Thomasson | Research Assistant | amy.thomasson@nzinitiative.org.nz
“Who will guard the guards themselves?” Plato asked in the Republic in 380BC. More than two millennia later, well-armed regulatory agencies, instead of armies, wield many of the powers of the state. But the question remains as relevant today as it was in ancient Greece.

Whether it is the Commerce Commission, the Financial Markets Authority, or the Overseas Investment Office, the arsenals of our regulators are fully-loaded. They have powers to compel, powers to prohibit and powers to prescribe. And, not surprisingly, they do not hesitate to use them.

But having power is one thing. Exercising it wisely and predictably is another. And that brings us to Plato’s question: who guards us against regulatory failure? It is an important question. Yet we give much less thought to how to govern our regulatory agencies than to how well we should arm them.

Indeed, our regulators come with a hodgepodge of different governance models. Some have governance boards, some do not. Some have a panel of commissioners, some have only one. Some are equipped with well-respected expertise and decision-making capability, and some are not.

In the coming months, the Initiative will be examining the governance arrangements of our most important commercial regulators. Rather than inquiring into what makes a good regulation, we will be asking what makes a good regulator.

We will investigate whether form follows function, or is an accident of history. We will also inquire into our regulators’ expertise. We will examine the decision by Parliament to replace the “commission model” of the former Securities Commission with the “governance board model” of the new Financial Markets Authority after the global financial crisis, to see whether there are lessons we can learn from this.

And we will evaluate whether the checks and balances in place to control our regulators have a bearing on the respect in which they are held by the market participants over whom they exercise power.

As with the guards of old, confidence in the guardians of 21st century commerce matters. If market participants lack respect for their regulators, or confidence in their decision-making, this leads to both uncertainty and risk-aversion. Both add to business costs, impair economic efficiency and harm the very consumers the regulators are created to protect.

Plato asked the question. We will do our best to answer it.
 


Election fought on swinging hyperboles
Jenesa Jeram | Policy Analyst | jenesa.jeram@nzinitiative.org.nz
Andrew Little has drawn a line in the sand. He has condemned the “blowhard” politics of Winston Peters, and has made it clear this election will not be fought on
swinging - um - personalities.

Good. Because if there is one thing this campaign period could do without, it is hyperbole.

If there were any doubt we are indeed in an election year, consider the headline that the ‘Greens threaten to go nuclear’.

When I first read those headlines, I got a little excited. Finally, I thought. The Greens were open to exploring alternative sources of energy. Or perhaps they were going to unveil their secret weapon for the election: an actual nuclear weapon.

The headlines had deceived me. The Greens were only metaphorically going to blow things up, by threatening to force another election if they don’t win.

Given the range of other outcomes that now seem likely based on current polls, another election seems like one of the less nutty options.

I also got excited when The Opportunities Party (TOP) waxed lyrical about the importance of freedom, the wisdom of people to pursue their own goals and dreams, and that it is best for government to get out of the way.

Thank goodness. TOP have stopped treating New Zealanders like idiots who are too dense to understand the brilliance of their tax policy. Except again, I was getting ahead of myself.

TOP still talk about the merits of a junk food tax, believing that people do not have the wisdom to make their own eating choices. So, good luck if your idea of the good life is to eat delicious food at an affordable price. Ditto if you want affordable booze and are under the age of 20. The good life is best enjoyed sober, apparently.

And as for low-skilled immigrants who wish to better their lives in New Zealand, TOP is happy to show them the door. The freedom to chase your dreams isn’t for ‘glorified dishwashers’.

Luckily, some exaggerations are easier to spot. Like the ACT Party claiming that 90 percent of New Zealanders would find their welfare policy uncontroversial. Not to be cynical, but I think they may be stretching the truth a little.

I cannot think of anything that 90 percent of New Zealanders would agree on.

Although the nation probably came close to a consensus during that All Blacks versus Lions game we will never speak of again.
 
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