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Insights 1: 28 January 2022
The Dominion Post: Eric Crampton on NZ's failure to prepare for Omicron and the shambles to come
Matt Burgess and Oliver Hartwich on understanding New Zealand’s high inflation
Newsroom: Russia has won the war without firing a single shot, says Oliver Hartwich

Our final Groundhog Day?
Dr Oliver Hartwich | Executive Director |
We are still five days ahead of Groundhog Day (celebrated on 2 February each year), yet we feel like we have been here before. Only Punxsutawney Phil and Andie MacDowell are missing.

Our Kiwi summer break this year deserved its name. However, Omicron’s arrival in the community brings us back to the same issues we have faced for the past two years.

Once again, questions of tests, masks, isolation requirements, border controls and vaccination protocols dominate the news.

As I wrote in my final Insights piece for 2021, New Zealand should move beyond the pandemic this year. Despite Omicron and the havoc it may wreak over the coming weeks and months, I still hope so.

The Government has radically changed its strategy – or, perhaps more accurately, Omicron has changed it for them. The super-transmissible variant left no other choice but to abandon the previous elimination approach.

The infections, hospitalisations and deaths we will see are no-one’s choice. But though the forced change will be brutal for some, there are positives as well.

We can already see what an impact New Zealand’s high vaccination rate has had.

During the pandemic, only 52 of our 15,842 Covid cases have died. Our rate of 0.33% is much lower than, for instance, the rates of the US (1.2%), the UK (0.95%) or France (0.73%).

New Zealand’s high vaccination rate will hopefully also protect most of us from severe Omicron cases, especially as the variant appears milder than its predecessors.

The Government has already signalled that, with Omicron widespread in New Zealand, the border will re-open. After two years virtually cut off from the world, that will be most welcome.

Other developments we can expect (or hope for) include better treatment options, increased immunity after the Omicron wave, and perhaps new vaccines.

Possibly, or even probably, the Covid pandemic will end in 2022.

When that happens, we must refocus. We will have to deal with the economic fallout from the events of the past years. That means reducing government debt, shrinking the Reserve Bank’s balance sheet, and getting house prices under control.

Education will need to be redoubled, not least because school closures and distance learning have hurt students’ attainment.

Our next step is to create an environment that will enable those industries which suffered the most during the pandemic to recover and grow.

Unlike Groundhog Day, there is nothing funny about Covid. But just as in Groundhog Day, it will all eventually be over. Hopefully, this year.

Unemployment smoke and mirrors
Roger Partridge | Chairman |
When something seems too good to be true, it usually is. New Zealand's apparently record-low unemployment figures are a classic case.

Before Christmas, Statistics New Zealand reported joblessness at the end of the September quarter of 3.4%, the lowest equal rate on record. This result would put a smile on the face of any Minister of Finance. Given the ravages of Covid-19, Grant Robertson could be forgiven for thinking he was an economic magician.

After an arduous year, the low unemployment numbers received plenty of media coverage. Good news was in short supply in 2021. But, aside from a column by Mike Yardley in Stuff this week, the dramatic rise in the number of working-age Kiwis receiving Jobseeker support has attracted rather less attention.

At the end of the September quarter, 112,056 “work-ready” New Zealanders were on Jobseeker support. This was close to twice the number five years earlier in September 2016, just before Robertson picked up the Finance reins. At that time, the official unemployment rate stood at 5%,

Why has the unemployment rate fallen to record lows under Robertson's watch, but the number of work-ready Kiwis receiving the dole nearly doubled?

Yardley suggests the answer lies in how Statistics New Zealand measures unemployment. Those not looking for work do not count as unemployed (even if they are receiving an unemployment benefit).

That can really matter when labour markets are weak and discouraged workers are dropping out of the labour force. But that is not what is happening now. We have had a strong labour market and increasing benefit numbers.

Why, then, is Work and Income New Zealand not ensuring those receiving an unemployment benefit are looking for work?

The likely answer is the Government's 2018 direction to WINZ to ease up on sanctions faced by Jobseeker recipients not actively seeking employment. In the first year following the policy change, the number of sanctions imposed plunged to 8,500 from 14,500 the previous year. 

Labour's intentions in easing sanctions were undoubtedly benevolent. Yet the human costs to those who drift into long-term unemployment by remaining on Jobseeker support are too serious to ignore. The well-being benefits of work are undisputed.

The Government might like to pretend unemployment is at record lows. However, when the increased number of working-age Kiwis receiving the Jobseeker benefit is taken into account, the unemployment rate is closer to 6% than 3.4%.

Instead of relying on a statistical mirage, the Government must reduce the number of working-age Kiwis on Jobseeker support.

The right policy settings will benefit workplaces suffering from labour shortages, taxpayers bearing the burden of rising welfare costs and, most importantly, the beneficiaries themselves. 

Punishing prudence
Dr Eric Crampton | Chief Economist |
Prudence is a virtue. Aristotle considered it among the nine most important. Economist Dierdre McCloskey considered it the lead virtue in a commercial society.

Punishing prudence is not a good idea. It undermines the ethical underpinnings of a free society.

On Wednesday, the New Zealand Government decided prudence is a vice to be punished rather than a virtue to be celebrated.

I spent the summer as a visiting Erskine Fellow with the Economics Department at Canterbury, my old home turf. The Department wanted me to help teach Masters students about economic writing.

McCloskey’s “Economical Writing” is unsurpassed, so I spent a bit of time re-reading her.

Two decades ago, McCloskey started work on what she called the Bourgeois Virtues.

A free society needs more than the incentives provided by the rule of law and the discipline of profit and loss. Both are underpinned by and help to reinforce a set of virtues – prudence chief among them. The prudence to buy low and sell high. And the prudence “to trade rather than invade, to calculate the consequences, to pursue the good with competence.”

Prudence matters.

For the past two years, prudence required preparation for inevitable Covid outbreaks.

Business operations during outbreaks overseas required regular staff testing. Businesses here tried importing Rapid Antigen Tests, so they could be prepared. Prudent.

The Ministry of Health had banned the tests in April 2020.

Rapid tests could have complemented more-accurate PCR tests during lockdowns. Workplaces could have used them between PCR tests.

The Ministry of Health would have none of it.

But MBIE proved more accommodating. After months of frustrating work, businesses were finally allowed to start ordering rapid test kits.

On Wednesday, the Government provided the prudent with their reward.

It ‘consolidated’ their tests.

The government had been imprudently late in ordering the tests that it ultimately decided were needed for the public health effort.

But no matter. The government had set itself a call option. It could simply take the results of others’ prudential efforts.

When the prudent expect predation, expect less prudence. Expect as well that many businesses will have cancelled remaining test kit orders rather than wait for them to be stolen by a predatory state.

McCloskey emphasised the prudence of trading rather than invading and stealing; of calculating the consequences of actions; and of pursuing the good with competence.

It is hard to see much evidence of prudence in this government. Prudent and imprudent alike will bear the cost.

On The Record

Initiative Activities:
All Things Considered
  • Graph of the week: Just how gummed up are supply chains?
  • The labour market is buoyant especially in the public sector
  • New Zealand’s bipartisan housing reforms offer a model to other countries
  • Why is Kenny G loved by the people and reviled by critics?
  • Science or ideology? The NZ university at the crossroads
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