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Insights 28: 3 August 2018
Dr Eric Crampton in the NBR on why Treasury needs economists
Upcoming WGTN event: Philippe Legrain on how hiring refugees can benefit business and government
Latest opinion: Dr Bryce Wilkinson writes for on NZ's relatively modest shadow economy

Treasury and opportunity costs
Dr Eric Crampton | Chief Economist |
Treasury is the heart of economic expertise in government.

But it is more than that.

Lots of Ministries have economists on staff – even Chief Economists. Treasury’s unique role is to run a straight economic ruler over policy initiatives proposed by other Ministries and to provide advice to its Minister about which government policies pass muster, and which do not.

Government has limited resources and it is important that every dollar go where it can do the most good. It takes well-trained economists to distinguish sound cases for government action from cases that simply advocate for a Minister’s preferred policies.

In last week’s National Business Review, I went through the qualifications of existing Treasury analysts and recent hires.

While Treasury has excellent data, reported in the annual reports, on gender and ethnic diversity of all its staff, Treasury’s HR systems are unaware of the qualifications of just over 42 percent of its analysts and senior managers. Among those whose qualifications are known, economists are outnumbered – even if we include those analysts with only an undergraduate qualification.

Treasury’s business-as-usual job is difficult enough. But Treasury has also built a substantial rod for its own back in wishing to develop an entirely novel system for budgets under the Living Standards Framework. In November 2014, Treasury Secretary Makhlouf said that Treasury’s Living Standards work would be at the frontier of economic thought. Work at the frontier requires building economic capability.

But Treasury’s most recent internal organisational survey noted diminishing capabilities, with those noting worsening capabilities outnumbering those citing improvement by a ratio of 2:1. Comments included statements like “The Treasury has been getting rid of economic & financial experts”; “Weak economic expertise. This is our core work and should be prioritised”; and ”Our deep economic expertise is very thin.”

Only two of nine hired in Treasury’s 2018 intake of graduates had any background in economics: one with a Masters, and one with an undergraduate qualification. 2019’s cohort saw improvement, but among the 10 of 15 who had training in economics, only four had a Masters or Honours qualification in economics or finance.

Treasury, like everyone else, is subject to opportunity costs. Less economic expertise means Treasury advice will contain less economic content – and especially where Treasury also must deliver the Living Standards Framework.

Restoring Treasury’s economic expertise and competence should be the primary goal for outgoing Treasury Secretary Makhlouf and his successor when his term expires next year.

Is it 2008 again?
Dr Oliver Hartwich | Executive Director |
Many of us will remember those gloomy days in late 2008 when the Global Financial Crisis peaked. Stock markets around the world crashed, Lehman Brothers collapsed, and the world’s financial system was on its knees.

This was the last time that New Zealand business confidence was as low as it is again today.

This week, ANZ released its latest Business Outlook Survey. It revealed that “a net 45 percent of respondents reporting they expect general business conditions to deteriorate in the year ahead.”

Superficially, such pessimism is puzzling. Economic growth is forecast to hover around the 3 percent mark for the foreseeable future. Unemployment is below 5 percent, and inflation right in the middle of the target range.

Even globally, there is nothing remotely comparable to the shocks of 2008. Yes, the prospect of trade and currency wars is not nice, and we have had better US Presidents before. But gross world product has also been steadily expanding at between 3 and 4 percent of the past years.

So why these sudden signs of panic in the business community?

To be clear, it is not just a sense of uncertainty worrying business leaders (even though there is no shortage thereof in key policy areas such as tax and employment regulation).

It is rather that the business community is unhappy about the general direction in which the Government is taking New Zealand.

It is little wonder that business is alarmed about the Government’s policies. The drilling ban showed a shocking nonchalance about consultative policymaking. Proposed changes in industrial relations have the potential to be both costly and cumbersome to employers.

More generally, there are doubts about the competence of Government as exemplified by mishaps and minor scandals.

To be fair, confidence numbers may be overly sensitive to party-political factors (they were also poor during the 2000s boom), but these developments are still worth worrying about.

Perhaps it does not matter much what business leaders think about the Government. Government must make decisions that are good for the country and not just one group or sector.

However, the ANZ Business Outlook Survey also demonstrates how business confidence goes hand-in-hand with future economic growth. And this amplifies the concern.

If the business community believes that our policy direction is so bad it makes them feel like it is 2008 again, New Zealand has a problem.

The Government must act quickly to address legitimate concerns and dispel misplaced ones.

Say no to saving turtles
Jenesa Jeram | Research Fellow |
Whenever a bartender enthusiastically asks me whether I want to save the turtles, I like to look them dead in the eyes and without hesitation say “no”.

Don’t get me wrong, turtles have never done anything to offend me personally.

But I know ‘saving turtles’ is code for saying no to plastic straws. And I cannot jump on this bandwagon.

There are practical reasons to celebrate plastic straws.

Expecting people to carry reusable metal straws with them is about as optimistic as expecting your colleagues to take home their Tupperware containers from the office kitchen.

Straws protect uncoordinated people from social disaster. Even in my most sober state I’m prone to spilling drinks on myself. Straws allow people like me to master the illusion of coolness and class.

Speaking of questionable coolness and class, bearded people are also at a disadvantage. Beards and frothy beers do not go together. These men need straws.

Paper straws are an inferior alternative. In fact, they should be deplored by public health campaigners for their contribution to binge drinking. Have you ever tried to drink slowly and responsibly with a paper straw? It is impossible. People will binge drink for fear of their straws disintegrating.

On a more serious note, for some with disabilities, straws are not a luxury but a necessity.

In New Zealand, opting out of straws is voluntary for now. But with official straw prohibitions popping up overseas, we cannot be complacent.

Violators of San Francisco’s straw ban could face a fine of up to $500. The Santa Barbara straw ban could punish repeat offenders with a fine of up to $1000 and at the steep end, six months in jail. Each straw counts as a separate violation, meaning the fines and jail time can add up quickly.

What the anti-straw lobby doesn’t tell you is that straws only contribute a tiny amount to the plastic waste in the ocean. Even advocates admit that the real value of the ban is to get consumers to think consciously about their “casual plastic use”.

Sorry to break it to you, but declining a straw with your next gin and tonic probably won’t save a turtle.

On the upside, at least a straw ban will give me the opportunity to set up a lucrative black market.

When the time comes, I’ll be the lady in the corner of the bar with a purse full of contraband plastic straws and single-use plastic bags.

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