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Insights 19: 4 June 2021
NZ Herald: Roger Partridge explains why the new FPA claims don't compute
Podcast: Matt Burgess and Oliver Hartwich analyse a short essay by Dr Rod Carr, chair of the CCC
Newsroom: Oliver Hartwich on why Switzerland has spurned the chance for greater integration with the EU

Reducing border risk
Dr Eric Crampton | Chief Economist |
The New Zealand government’s approach to border management, contrary to popular belief, is not terrified of risk.

It is far worse than that.

The approach instead is terrified of change. And that does not always reduce risk.

A system terrified of risk would take every reasonable effort, and maybe also some unreasonable efforts, to avoid Covid outbreaks. Until vaccines are broadly available, err on that side.

This week, Business Desk’s Pattrick Smellie asked why regular saliva testing is not in place at the border.

Rako Science’s FDA-approved PCR saliva test has been available here since January. From staff to MIQ visitors, every person in the border system could have been having daily or near-daily saliva testing.

It provides results in hours rather than days.

And it isn’t a pipe dream still on a drawing board. Rako has successfully been testing people in New Zealand since January. Rako’s results have been validated by work at Victoria University of Wellington.

And the test will soon be available at pharmacies too.

Rapid saliva testing substantially reduces risk. Daily testing for all MIQ visitors and staff would quickly show whether nasal swab tests were still needed or were redundant. A government terrified of risk would not hesitate.

Instead, the government contracted a limited amount of saliva testing for some border workers from an excellent company whose system is not yet running. The testing system was not disclosed in the government’s press release.

Smellie’s proposed uncharitable explanation for what is going on is identical to the conclusion I reached. The Ministry of Health “simply can’t hack dealing with anyone who threatens to show them up.”

This is not a system scared of risk.

This is status-quo bias, and patch protection, so severe that it puts all of us at risk.

The border could be much safer, but the Ministry of Health says no. And the border needs to be able to change.

New Zealand needs nimble systems able to keep up with changes like mass vaccination abroad. MIQ facilities closed after the Australia bubble could be reopened for vaccinated, tested travellers from places with low covid rates.

Daily saliva testing could help determine how long a stay in MIQ was necessary for those visitors.

More people would be able to travel at lower risk. Families could reunite; critical business travel could resume.

It requires a risk-sensitive system. Not our current sclerotic one.

News from the Unreserved Bank
Dr Oliver Hartwich | Executive Director |
In mid-2019, the Reserve Bank signalled it was considering unconventional monetary policy such as quantitative easing (QE), vulgo: money printing.

Back then, Eric Crampton, Robert MacCulloch and I wrote a short paper called The Unreserved Bank of New Zealand: Why unorthodox monetary policy needs boundaries.

We urged that quantitative easing should only be used to reach the Bank’s monetary goals. Deploying its newly created money for other purposes risked politicising the Reserve Bank.

It seems stronger warnings were needed.

RBNZ Chief Economist Yuong Ha this week delivered a speech prepared by Vanessa Rayner, the Bank’s Head of Financial Markets. The topic was “A Strategic View of Te Pūtea Matua’s [the RBNZ’s] Balance Sheet”.

Sounds technical, but what a bombshell it contained: “When looking at the future of our balance sheet, it should come as no surprise that climate change and sustainable finance is at the forefront of our minds.”

The Reserve Bank’s balance sheet Rayner refers to has swollen to $85 billion. Of that, $57 billion are bonds it purchased under the QE programme with new central bank money.

By June 2022, when the QE programme is likely to run out, these sums would have increased by another $43 billion.

So, what will happen with this large position on the Reserve Bank’s asset side?

It is indeed no surprise that the RBNZ is focussing on climate change. It does so in its regulatory role in financial markets.

However, what is new is that Rayner suggests the balance sheet itself may promote climate change policies. “There is also opportunity for central banks to take a step further to ensure their balance sheet operations actively support the transition to a low carbon economy,” she said.

The RBNZ has no formal mandate for climate policy. So far, it had always maintained that the purpose of QE was monetary policy.

Rayner’s speech confirms our biggest worries from two years ago. We were concerned that the vast sums under the control of the RBNZ would be too tempting to use to achieve other goals.

Should it come to that, it would mark another milestone in the ongoing politicisation of our central bank. From a Reserve Bank once celebrated for its focus on price stability and for its independence, it would have turned itself into a political institution.

Because of this, we can only repeat our 2019 recommendation: The Minister of Finance and the Reserve Bank Governor should urgently reaffirm what the role of the RBNZ ought to be.

Dreaming of Rod
Matt Burgess | Senior Economist |
It only took minutes for the ambulance to arrive after my call to 111 from the kitchen floor, the pain cutting through me like a cracked whip. I was in trouble.

As the paramedic wheeled me out, I saw “Climate Change Commission” on the side of the ambulance. Waiting next to it stood Rod Carr, the Commission’s chair.

I have been up to my head in climate change policy for months. And now Rod Carr is running an ambulance service. This must be a dream.

Rod had a plan. “I could just take you to the hospital, it’s only five minutes away,” he said. “But I have a better idea. I want to show you the real New Zealand.”

“People don’t appreciate how beautiful this country is,” said Rod.

Rod listed all the benefits of his plan. The view, the fresh air, the harbour at sunset. He would get me to the hospital in an hour.

Rod made a heck of a good case. But he only mentioned the benefits of his plan, none of the downsides. I could die, for example.

Rod could see my discomfort.

“I know what you’re thinking,” Rod said. “What about the emissions?”

“Don’t worry,” he said, smiling as he tapped the side of the ambulance. “She’s electric”.

“This is an emergency, Rod,” I sputtered. “Get me to the hospital. NOW!”

The tour was lovely. Rod was right, the countryside is stunning at this time of the year. As I passed in and out of consciousness, I remember seeing native trees, and a few farms and villages. But mostly just native trees. Rod sure likes native trees.

We even stopped and went for a forest walk. Rod wheeled me around the track in my gurney.

On the way back to the hospital Rod stopped again, this time to recharge the ambulance. It took 30 minutes. “Range anxiety is a real killer,” Rod said.

We finally made it to the hospital. I had survived. Rod placed the invoice for our trip into my pocket so gently that I barely noticed. There my dream ended.

Six months ago, Parliament declared a climate emergency. This week, like an ambulance driver taking the scenic route, the Climate Change Commission told the government we should take a needlessly difficult, costly and risky path to lower emissions.

Find a shorter route, Rod.

On The Record

Other Initiative activity:
All Things Considered
  • Graph of the week: Latest OECD forecast - New Zealand
  • Why the hell aren't we saliva testing right now? ($)
  • New Zealanders are coming home, will the old problems push them back out?
  • Ben can read
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