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Insights 44: 26 November 2021
NZ Herald: Matt Burgess asks the minister to explain how his plan works
Webinar 2 Dec: What central banks should and shouldn't do, with John Cochrane
Report: Reading with the light switched on by Steen Videbeck

Reading with the light switched on
Dr Oliver Hartwich | Executive Director |
One in eight people worldwide could read Pride and Prejudice when Jane Austen published it in 1813.

Today, it is the opposite. Only one in eight people worldwide is illiterate.

Literacy is among the most profound social changes of the past two centuries – and perhaps the most overlooked.

Because written language is ubiquitous, we take it for granted. Yet we should not do that, for two reasons.

First, modern society would not exist without universal literacy. Literacy allowed a broader spread of education. It made social mobility possible. It democratised many aspects of life like political, cultural and social participation.

Second, literacy is under threat, especially in New Zealand. PISA 2018 was the latest round of the Programme for International Student Assessment (PISA). It showed that 19% of 15-year-olds in New Zealand do not have the reading skills they need to learn, work, and participate fully in society.

To make matters worse, PISA also revealed that underprivileged groups in our society struggle the most. 30 percent of Māori and 36 percent of Pasifika 15-year-olds lacked basic reading skills. These children are not to blame. The education system is failing them.

In the same way as the historical rise of literacy paved the way for social mobility, our decline in literacy rates now limits it. If you cannot read well, many education pathways and professional careers will be closed.

As a society, we cannot tolerate this situation. We must discover what has gone wrong in our schools and improve it.

Fortunately, the Government acknowledges the challenge. The Minister of Education, Chris Hipkins, has promised a ‘literacy reset’, and the Ministry of Education is providing new phonics books for schools.

The bad news is these changes may not be enough. It has become difficult to even find instructors with a grasp of modern teaching methods.

To improve our students’ reading abilities, their teachers must be better trained. The training should use the latest research on how the brain connects letters and words.

This understanding, and methods following from it, will help New Zealand reverse its worrying literacy decline.

We do not want to return to Jane Austen’s times when class and background determined a child’s success in education and life.

To find out more about New Zealand’s literacy crisis and how to fix it, I urge you to read Steen Videbeck’s brilliant new book Reading with the light switched on, available here.

How to cost taxpayers $6 billion – and counting
Dr Bryce Wilkinson | Senior Fellow |
It is easy to squander taxpayers’ money if you are a central bank. The losses amount to a few thousand dollars per household, but hardly anyone is aware of it.

This is how it works.

First, look for a great pile of assets to buy. Then buy a big chunk of them. Sure, you must outbid everyone else, but you have the ultimate ATM.

Suppose the assets were selling for $1 before you started buying and you drive them up to, say $1.10.

Of course, even you have to stop buying at some point. That is when things can turn sour. Asset prices might drift back to $1 because the biggest buyer – you – has dropped out. Your paper losses mount. Oops.

Those who sold to you are smiling. They can now buy the asset back for $1 and keep the profit.

But the losses are not your problem. Treasury has promised taxpayers will pick them up. Genius.

This, in a nutshell, is the Reserve Bank of New Zealand’s Long-term Asset Purchase Scheme (LAPS).

It did indeed target a great pile of assets. At the end of February 2020, $77 billion of government bonds were potentially available for purchase. Government deficit spending rocketed that up to $138 billion by the end of October 2021, more than $75,000 per household.

The RBNZ started hoovering up these assets under the LAPS scheme from March 2020. Initially, it bought between four and seven billion dollars a month.

Prices rose sharply, reducing the cost of new borrowing. The RBNZ was pleased to take the credit for this.

The RBNZ stopped buying in July 2021. By then, it had bought $53 billion of government bonds. That is about $30,000 per household.

But the prices of these bonds have fallen since July, lifting the cost of new borrowing (ie interest rates). By the end of October 2021, the RBNZ’s losses had reached $5.8 billion. But for the indemnity, the RBNZ’s equity of $2.76 billion would be negative.

The losses for taxpayers look set to rise by many more billions. Rising inflation expectations depress bond prices, lifting interest yields. Taxpayers are enduringly exposed because the RBNZ has badly mismatched its assets and liabilities.

Under the indemnity, the RBNZ can shrug its shoulders and keep its massive gamble open. But someone should be accountable. Surely it is Treasury and the Minister of Finance.

To find our more, listen to Oliver Hartwich's latest podcast.

Medical ethics
Dr Eric Crampton | Chief Economist |
If you’ve ever had concerns about economists’ ethical commitments, relax.

It could be worse.

Just consider medical ethics.

Pfizer recently stopped its trial of anti-Covid treatment Paxlovid, currently in international approval processes.

The pill was just too good.

It became really obvious really quickly that Paxlovid is really effective. Patients given the drug shortly after infection were 89% less likely to go to hospital or die, compared to those given placebos.

Continuing to give placebos was obviously unethical. It condemned the control group to a massive increase in the risk of hospitalisation or death.

That all sounds eminently reasonable. The drug proves effective, so just give it to everyone.

But that’s where medical regulatory ethics give us all a nice kick in the pants.

The drug is still in the American approval process – as well as new Zealand’s. It is deemed unethical and actually illegal to provide it until it is approved. Except as part of a clinical trial. But the trial had to end because it was unethical not to provide the drug to the control group.

If the trial had continued, people registering for the trial would have had a 50/50 chance of getting Paxlovid. Now they have a 0% chance of getting Paxlovid until the bureaucracy stamps some forms.
A modern Kafka could have written the story. But it’s sadly not fiction.

Of course, it gets worse. Just look at Covid vaccines for kids.

Canada, the EU, and America have all approved Pfizer’s vaccine for kids aged 5-11. Doses are going into arms in Canada. As of the middle of this week, over three million doses had been administered in the US. It is going fine.

But New Zealand’s medical system forbids my 11-year-old asthmatic daughter from being vaccinated until every form is filled in, every number checked, and every bureaucrat satisfied.

It could be one of those old Tui billboards. “Medsafe will find something the Americans, Canadians, and the EU didn’t? Yeah, right.”

By the time Medsafe approves, the Technical Advisory Group advises, Cabinet considers, and orders arrive, Covid will be everywhere.

Surprisingly enough, kids are allowed to get Covid without Covid having to go through any ethical approval process at all.

But it would be unethical to give her a half-sized adult dose in the meantime.

It’s time to cut economists a bit of slack. It’s the medical types who are the real moral monsters.

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