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Insights 2: 1 February 2019
Read: Eric Crampton argues on Newsroom that most of what people think they know about income inequality is wrong
Latest report: KiwiBuild - Twyford’s Tar Baby
Listen: Eric Crampton discusses on Newstalk ZB whether the $70,000 benchmark for 'high earning’ is still acceptable

Being kind to the Fourth Labour Government
Dr Oliver Hartwich | Executive Director |
During her tour of Europe last month, Prime Minister Jacinda Ardern wrote a piece in the Financial Times.

As it was published behind the London newspaper’s paywall, most New Zealanders probably missed it (though a copy is available on the Beehive’s website). That is a shame because the opinion piece offers a concise insight into her Government’s philosophy.

Commentators such as Michael Reddell and Rodney Hide criticised the Prime Minister’s piece. However, Ardern makes a few good points about common aspirations and widely shared positions.

Ardern argues for substantial improvements in mental wellbeing, particularly for young people. She underlines the importance of the international rules-based order. And she denounces the false promises of protectionism and isolation.

The Prime Minister’s approach can be summed up in one word: kindness. Something no one in their right mind would oppose.

Sadly, she fails to show such kindness to the Governments before her, especially the Fourth Labour Government.

In her opening paragraphs, the Prime Minister describes the reforms that started in 1984 as a “neo-liberal economic experiment”. Phrasing it that way would also require pointing out that the experiment succeeded – and in a spectacular way.

In 1984, New Zealand had an uncompetitive economy. Unemployment was high, young people were leaving the country in droves, and the foreign exchange crisis had escalated to where New Zealand was about to call in the IMF.

Ardern is right that the medicine prescribed to the country in the form of tough reforms was also a bitter one. But it was also the correct one.

The reforms were as courageous as they were necessary. They created today’s prosperous New Zealand with its enviable global rankings for competitiveness, ease of doing business and quality of life.

Contrary to this perspective, the Prime Minister insinuates that the 1980s reforms laid the foundations for a lightly taxed and unequal country.

Neither is true. Our tax burden is considerably higher than, say, in Switzerland or the US. Meanwhile, measured for consumption, inequality in New Zealand is now lower than in 1984.

Surely, despite her criticism, the Prime Minister is not implying that New Zealand ought to revert to fixed exchange rates, import controls, nationalised industries or agricultural subsidies.

Kindness is a virtue. Let us extend it to those brave political leaders of the 1980s and 1990s.

Empowering students with better information
Joel Hernandez | Policy Analyst |
Jake is a 16-year-old student with NCEA level 1 who has just left school.

His friends and family tell him “more education is always better; graduates earn more on average than non-graduates”.

Jake is sick of school, but he is being pressured by his family to gain level 2 and 3 through tertiary study.

He does not know whom to believe, or what to do next.

This is the reality for many students who have left school with only an NCEA level 1 qualification.

The phrase “more education is always better…” can be misleading: Unadjusted statistics showing that “graduates earn more on average than non-graduates” is not the full story. Students who complete NCEA level 2 and 3 by the age of 18 differ systematically from the group of students who leave school at age 16 with only NCEA level 1.

The right choice for one group of students is not always the right choice for another.

And the truth is, until recently, New Zealand has not known what the most effective pathway is for this group of students either.

New insights from a recently released Treasury working paper have shone light into this difficult question. Does it make sense for students who leave school with only NCEA Level 1 to go back to pick up a level 2–4 certificate afterwards?

It does – for that half of the students who completed the qualification. This is because they are more likely to be employed and less likely to be on a benefit. But 49% of the students who did not complete the attempted certificate saw no benefit.

It is a coin flip. Heads you get a 9-percentage point increase in your likelihood of employment after completing the certificate; tails you get the hassle of having tried and failed – with no benefit.

Insights and decisions informed by quality research such as this Treasury report can help students achieve better life outcomes.

Interestingly, the Treasury findings were gleaned from Statistics New Zealand’s Integrated Data Infrastructure (IDI) – New Zealand’s largest research database. Researchers built a comprehensive image of a student’s background using linked administrative data from all the government agencies, public surveys and the national census.

Like the advice Jake received from his friends and family, the findings from this paper are not the full story.

Jake has another option – going into a trade. With better information and advice, he would know whether it is the better option for him.

The Treasury Working Paper referred to here is: “The Impact of Tertiary Study on the Labour Market Outcomes of Low-qualified School Leavers: An update (WP 18/03)”.

Eulogy for the last plastic bag
Jenesa Jeram | Research Fellow |
Tidying guru Marie Kondo advises her followers to hold or hug everyday items and ask yourself: “Does this item spark joy?”

So I picked up a plastic bag and clutched it to my chest. I first felt joy, and then an overwhelming grief. The moment I had been dreading had arrived: my household had reached the last of our plastic bags.

As my tears splashed off the plastic folds, I reflected on the injustice of the impending plastic bag ban. The ban that began with an unforgivable slur: single-use. There is nothing single-use about plastic bags.

Apart from the one I immediately threw away after raw chicken juice had leaked into it.

Plastic bags sheltered my groceries from the rain. They protected my kitchen bin from smelly food waste. They encased my wet togs in summer and muddy sports shoes in winter. They even saved my holiday from disaster by containing a shampoo suitcase explosion.

The plastic bag did not deserve to die so soon. There were other options available.

The government had an arsenal of economics tools at its disposal, such as introducing a levy, to address purported externalities The government also does not appear to understand human behaviour, and whether people will simply purchase bin liners or dispose of these new-fangled ‘multi-use’ bags at the same rate as ‘single-use’ bags.

It is difficult to let plastic bags rest in peace when there is no good cost-benefit analysis that would help me understand and accept their demise.

I’m already beginning to forget the soft rustling sounds plastic bags make. But now I learn that plastic bags were only the first to fall in a bigger war.

There is talk of banning ‘unnecessary’ plastic. A smear as egregious as ‘single-use’ bags.

Will the bags for bread loaves be next on the chopping block? The plastic that holds together a dozen rolls of toilet paper? What about the wrapping that keeps cucumbers fresh, the snaplock bags used at the bulk bins, or the plastic trays of muffins that protect them from being crushed?

There are no clear rules on what constitutes ‘unnecessary’. But there is pressure on consumers and supermarkets to change their ways without addressing the woeful lack of recycling facilities and viable alternatives.

Alas, perhaps this plastic war is a lost cause. But as I cut into my steak, I cannot help but wonder: what next?
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