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Insights 33: 7 September 2018
Read: Eric Crampton argues on Newsroom BERL's latest estimate of the social costs of alcohol is wrong
Have your say: What is good public policy in New Zealand?
Vacancy: Research Fellow with a passion for public policy

Canít get no satisfaction
Dr Eric Crampton | Chief Economist |
Every two years, Treasury surveys stakeholders about Treasury’s performance. The 2015 survey was up on Treasury’s website about two months after it was completed. The 2017 survey was completed last August but still had not shown up on Treasury’s website a year later.

I had a pretty good idea why they were sitting on it. The parts of the report I had had the chance to see were not laudatory.

This week, Treasury responded to my OIA request for a copy of the full report and their reasons for not previously making it available. Treasury said they had planned on releasing the report only after having put in place measures to improve things.

The case for improvement is pretty obvious. Economists are now in the minority among Treasury analysts and recent junior hiring rounds have not been boosting Treasury’s economics capabilities. Ratings on the quality of Treasury’s advice have been declining every year. Internal surveys suggest diminishing depth of expertise.

Then there’s the now-released 2017 external stakeholder survey.

Among those people interacting with Treasury about its core business of economics, macroeconomics, and fiscal projection, satisfaction dropped from 70% in 2015 to 47% in 2017. The proportion of stakeholders viewing Treasury staff as well-informed dropped significantly, as did overall confidence that staff do a good job, that Treasury challenges thinking on critical issues, and that Treasury can offer insights.

One highlighted survey response noted that “Treasury staff are personally a pleasure to work with, but they don’t have a strong background in economic analysis.” It is no particular surprise that lifting the quality of staff was near the top of the list of things stakeholders wanted Treasury to focus on.

The August survey results were reported to the Executive Leadership Team in November 2017 and discussed in February 2018. This week’s letter from Treasury says they are working on building economic capabilities through measures like training existing staff and through recruitment.

When Treasury would have released the Stakeholder survey, barring being prodded, is anyone’s guess. Only four of fifteen hired by Treasury in the 2019 graduate recruitment round had at least Honours-level training in economics and finance; I doubt that counts as addressing the concerns raised in the survey.

The consequences of Treasury’s failed experiment in de-emphasising economics will be felt for a long time. Treasury needs again to be the place where top economics graduates want to work.

Treasury's response to our OIA request is available here.

How to get politics close to the people?
Natanael Rother | Research Fellow at Swiss think tank Avenir Suisse |
The only two certainties in life are death and taxes. So goes the quote attributed to American politician Benjamin Franklin (or Christopher Bullock or Edward Ward, depending on which source you trust most).

But whoever said it – it is still true. Taxes are a certainty. But how they are collected and spent is not. This is what this piece is about. I shall focus on the institutional aspect of this topic: What system ensures governments are spending on what voters wish them to do?         

Localism is a possibility. And there are pros and cons.

On the one hand there are those, whom I’d call the “centralists”. Mike Hosking praise for the central government to overrule councils’ decisions on housing in Auckland is an example for that. Of course the housing market is not working, but that is because of a lack of incentives for local authorities and for no other reason. Hosking however went on to hint that it’s better to get rid of local authorities altogether.

Others have more faith in local power. Let’s call them “localists”. Their argument is that local power might make it easier for the people in charge to find out what their voters want. All in all, preferences of the voters and taxpayers could be represented better and, local decision making should increase public interest in politics and therefore lead to cost-conscious behaviour.

So, who is right?   

Economic research done by a group of researchers in Switzerland have gathered empirical evidence on that question. Their conclusion from the various research papers they summarized is interesting: Decentralisation provokes a change in the structure of public revenue and spending. For example, decentralisation would increase the share of expenditure that goes to education and health. And they also found evidence decentralisation has a positive impact on education quality.

The idea that local governments are unable to do good is therefore wrong. Localists have a point. But, in order to make localism work, the incentives have to be right, and local authorities have to be treated as a relevant part of the state. In a setting like this, local authorities have been proven to be able to deliver what they should – good quality services at a competitive cost.  

Though we cannot avoid death, we can at least ensure our taxes are spent wisely. Devolving decision-making powers may just be the way to achieve that.

Give me the route not the destination
Matt Burgess | Research Fellow |
“Siri, give me directions to the airport.”

After a long couple of days of meetings in Auckland it was time to head home.

The reply from my smartphone was immediate. “What time do you call this?”

Wait, what?

“Siri. Give me directions. To the airport.”

“Matt, economic growth is one of five important drivers of living standards. Let’s finish that report you’ve been working on.”

This new Living Standards Framework upgrade for Siri, based on work by the experts in the New Zealand Treasury, was wearing thin.

“Siri I need to get home, I’m more worried about managing risks and increasing equity.”

Another two of the five objectives of the living standards framework. I was pretty sure Living Standards Siri had no idea what these actually meant. I certainly didn’t. But since the upgrade I had found I could get Siri to agree to anything just by declaring an action would lead to more of at least one of the living standards objectives. Siri had no way to know if what I was saying was true.

In fact, the new Siri was quite limited. Throughout its years of development, managers had asked that the geniuses writing the code include some way to understand trade-offs between the five living standards objectives. In the end it was decided that “opportunity cost” was simply an intellectual concept, had no practical use, and attempting to include it could break the whole application.

And anyway, hardly anybody in the building had even heard of opportunity cost – how important could it be? – and so the application shipped without it.

Finally, Siri was ready to show me the way to the airport.

“Here are five route options, Matt.” Great.

“Only three of these routes actually go to the airport and I’m not going to tell you which ones. Of the other two, one is a nature walk, because sustainability is important and let’s face it Matt you’re not getting any slimmer. And one is a bike ride followed by thirty minutes of volunteer work in a food kitchen, because social cohesion supports living standards.”

Siri was right, of course. Years of research had proved the benefits of volunteering on social cohesion. And I could use the exercise.

But right now I needed to manage risks to smartphone cohesion.

“Siri I’d like to remove the living standards upgrade and roll back to the previous version.”

“Sorry Matt, the old version is no longer available and all its programmers had to leave the building.”
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