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Insights 3: 9 February 2018
Upcoming event: Dinner lecture with Katharine Birbalsingh
Latest report: Recipe for disaster, building policy on shaky ground
Dr Eric Crampton on Radio New Zealand: Why sugar taxes won't work

Financial crisis 4.0
Dr Oliver Hartwich | Executive Director |
The Global Financial Crisis now seems such a distant memory, it is easy to think of it as an historical episode. But this week’s stock market troubles are a timely reminder that the world economy is not in a healthy state.

In a sense, the ‘flash crash’ that started on Wall Street was just a partial correction of recent exaggerations. In part fuelled by expectations of President Trump’s tax reform, US stocks had rallied. Now some of that exuberance disappeared again.

So a technical correction and nothing else to see here? Not quite.

The problem is fundamental. A decade ago, the world witnessed a crisis in the US subprime lending market. This then became a banking crisis on both sides of the Atlantic. Then it turned into a sovereign debt crisis for many European countries.

In each phase, the policy response was stimulus. Governments were spending more money, and central banks were flooding markets with cheap money. But while fiscal measures were phased out after a few years, central banks are continuing their loose monetary policies.

In the US, the Federal Reserve has only cautiously tried to wean the economy off cheap money. However, the European Central Bank and the Bank of Japan are still showering the markets. The combined balance sheets of these three major central banks have never been larger.

There is a saying that when things cannot go on forever, they will eventually stop. It applies to monetary policy.

At some stage, emergency measures such as ultra-low interest rates and quantitative easing must end. They are hard to justify when most developed economies are growing at a reasonable pace. Their side effects, eroding savings and price level increases, require a monetary rethink.

The modest drop in our stock markets this week signals that markets realise this. But after ten years of cheap money, it is difficult to imagine the return to a world of ordinary monetary conditions.

Like drug addicts used to a life on speed, markets have happily absorbed the sweet poison of low interest rates. Getting them off it would be healthy. But the withdrawal symptoms could be so bad they could trigger the next crisis.

Then again, perhaps the biggest mistake was thinking of the Global Financial Crisis as history. In fact, it never ended. It just morphed. We are waiting for the next stage.

A trick for principals
Martine Udahemuka | Research Fellow |
New Zealand school principals should add to their skills repertoire: ‘Magician’.

In the week leading to the first day of school, leaders were reaching into their hats of creative tricks to fill vacancies.

The Herald reported that one in five Auckland schools, and one in 10 in the rest of the country were still trying to find staff.  

Work-arounds included increasing class sizes, enticing overseas and retired teachers, or, in worst case scenarios, scrapping subjects altogether.

But these are temporary patch jobs that fail to address a root problem: Few school leavers want to teach.

Between 2008 and 2012, the number of teacher trainees fell by 10 percent while engineering, IT, and health numbers increased. In 2017, there were 700 teacher graduates; enough to fill only half the open vacancies.

But low trainee numbers are a challenge that can be overcome, as overseas experience demonstrates.

School districts in America have worked out that if they signal to school leavers that a choice to teach can be rewarding, they get a better pick of graduates.

A Brookings Institution paper released last week found that districts with pay-for-performance schemes, on average, recruited more graduates from universities with strong academic records than districts without such schemes.

The researchers found similar results even when other recruitment strategies, such as those used in New Zealand, had been implemented.

So, money may not be why people get into teaching, but it may be a reason they stay out of it.

Recruiting is only part of the solution. Retaining the graduates is the other. The U.S. approach to recognise smart and effective teachers knocks both with one stone. Washington DC’s teacher development and reward system is a case in point: when effective teachers get recognition, they choose to stay.

If implemented right, pay-for-performance systems are a win-win-win: for students, teachers, and school principals.

We need the brightest graduates in front of kids in classrooms. But until those making the choice see teaching as a match for their skills as compared to other professions, every school term will see principals pulling tricks out of hats.

A nation divided
Ben Craven | Project Coordinator |
This week saw a nation divided.

While there were no protests in the streets, snarky comments were rife.

It was not uncommon to hear people mumble disparaging remarks under their breath.

And all the usual suspects were well and truly on the bandwagon.

Social media was in a stir as we have all come to expect around this time of year.

And talkback hosts and news anchors reported about events with gusto.

For many New Zealanders it was a time to commemorate with friends and whanau.

But for others there was no special significance. It was just another day.

I am of course talking about Super Bowl LII.

Love it or loathe it, Super Bowl mania has started to afflict many sports nuts all the way over here in Godzone.

Many Kiwis took the Monday off to sit in the pub and watch the 52nd Super Bowl, drink American beer, eat American food and cheer their favourite American team.

The rest of New Zealand, myself included, looked on a little bemused by all the hype.

Whatever happened to good old rugby?

Isn’t American Football the lesser of the sports?

It turns out I had been looking at it the wrong way entirely.

Rather than being a fast paced contact sport like rugby, American Football is more like a turn-based strategy game.

The fact that the ball is only in play for about 11 minutes in the 3.5-hour long Super Bowl does not seem to upset diehard fans in the slightest.

I still don’t think I will be sitting down to watch Super Bowl LIII, but to each their own.

And that holds true for Waitangi Day too.

Thankfully, this time around there were no major protests.

There was no mud flinging or sex toy throwing.

And the Prime Minister looked at least as adept on the barbie as yours truly.

While many politicians made the annual pilgrimage to Waitangi, others spent time with local iwi or kicked back like the rest of us.

Just like the Super Bowl, it turns out I had previously seen Waitangi Day the entirely wrong way too.

Far from being a nation united, on Waitangi Day we are a nation divided into lots of different people, groups and families each doing Waitangi Day their own way.
And actually, I think that’s pretty choice.

On The Record
All Things Considered
  • Graph of the week: Hyperinflation - egg prices to increase by 13,000% in Venezuela.
  • How a crushed bug became a symbol of wealth and status.
  • What can Uber teach us about the gender pay gap?
  • Singapore's mystifying political succession.
  • Canada is descending into a trade war - with itself.
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