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Insights 12: 14 April 2023
Newsroom: Eric Crampton on how to make Emissions Trading Scheme bulletproof
Podcast: Oliver Hartwich and James Kierstead on administrative bloat in universities
NZ Herald: Bryce Wilkinson asks where is our Supreme Court on the rule of law?

False security in high ratings
Dr Oliver Hartwich | Executive Director |
After the Global Financial Crisis of 2008, markets became concerned about Greece’s ability to repay its debts.

Until the crisis hit, rating agencies were relaxed about Greece’s solvency. Fitch rated the country as ‘A’ in October 2008, Standard & Poor’s gave it an ‘A-’ in January 2009, and Moody’s gave it an ‘A1’ in February 2009.

But by 2011, all three agencies had downgraded Greek debt to junk status.

Ratings may seem fine and markets relaxed, but sentiment can change quickly.

The three agencies currently rate New Zealand as AA+, Aaa and A+, respectively. But these high-grade ratings should not give us a false sense of security. There are reasons to be concerned about New Zealand’s economic prospects.

Our current account deficit last month was the largest in over three decades. Given rising price levels, that is not surprising, but the deficit was also the highest relative to GDP, at 8.9 percent.

The result is that every 11th dollar New Zealand spends is a dollar it must borrow abroad.

Even a deficit of 8.9 percent of GDP may not be a problem. But when the rest of the world thinks it is, it becomes one. And New Zealand’s prospects will worry global markets.

New Zealand’s price inflation remains uncomfortably high. The Reserve Bank expressed concern about the economy showing signs of overheating and the labour market being too tight. Both are results of the enormous amount of money created during Covid.

Because of our own policy choices, New Zealand has become a less attractive destination for migration and investment.

A decade ago, New Zealand’s government was much smaller than it is today. Erratic policy making has also created a perception of greater political risk.

Once international markets become alarmed, their worries can become self-fulfilling, as we have seen internationally.

In the event of a credit downgrade, interest rates would likely rise. The impact on household consumption and investment would be significant.

Consumer confidence would be affected by uncertainty about the country’s economic prospects.

In this scenario, the New Zealand dollar may depreciate, increasing the cost of imports and potentially increasing inflation. A weaker currency would lead to higher debt servicing costs.

Furthermore, a downgrade may negatively affect foreign investment since investors may perceive New Zealand as a riskier destination.

New Zealand’s economic circumstances have deteriorated so much over the past few years that a credit rating downgrade would be a lagging indicator of our economic troubles.

This scenario may not be imminent. But it is something to watch out for.

The unintended consequences of reckless imperialism
Benjamin Macintyre | Research Assistant |
When Putin started his illegitimate war in Ukraine nearly 14 months ago, he claimed it was for its “demilitarisation and denazification”. Almost all security analysts, however, rejected this ridiculous suggestion. One of the real motivating factors, along with reclaiming territory Russia once controlled, was to reduce NATO influence in the region.

On Tuesday, he got the exact opposite.

Finland’s decision to join NATO reverses decades of military non-alignment. Since the end of the Second World War, Finland has sought to align itself with the West in trade and political terms - it has been a member of the EU since 1995. On security matters, though, it has maintained a neutral stance.

By invading Ukraine, Putin has pushed Finland to abandon this policy and run into NATO’s embrace. So, instead of reducing NATO influence in Eastern Europe, Putin has doubled the length of the Russia-NATO border in one fell swoop. Sweden, with its history of non-alignment, lies in wait to follow Finland’s example (pending appeasement of Turkey’s concerns).

Finland’s decision represents a momentous shift. And it shows how quickly opinions can change in the face of increased insecurity. Once proud of their non-alignment, Finns now support joining NATO by around 80%. Instead of fracturing the West, Putin has brought it closer together and enlarged it. I suppose we can thank him, though it is unlikely he would be appreciative.

Putin will use Finland’s pivot as twisted evidence of Western malfeasance. Once again, he will claim NATO expansion threatens Russian interests and shows that the West wishes for Russia’s destruction. This dangerous Russian myth has even begun to take hold in certain parts of Western Europe, not least in the pseudo-intelligentsia that populate its far-right parties.

Of course, the opposite is true. NATO does not force anyone to join. Prospective members must be democracies (although Turkey is a stretch in that regard). Whilst, in theory, NATO invites potential members, in practice, they ask to be invited first.

All this is to say that countries do not join NATO for no reason at all. It is almost always a reaction to increased insecurity. And which state has been the most destabilising on the periphery of Europe? No prizes for guessing.

Russia wanted less NATO influence. It got more. Hopefully, this will show Putin that he cannot bully his way to a compliant Eastern Bloc - though this lesson will likely go unheeded.

Who needs reality, anyway?
Dr Michael Johnston | Senior Fellow |
I remember Primary School maths as being about learning to add, subtract, multiply and divide. Once we had learned those things, we took on fractions and decimals.

There was geometry too, of course. By the Intermediate years we were tackling algebra and trigonometry.

But a brave new era is dawning in mathematics education. We no longer need all that so-called ‘objective’ arithmetic. And who says a triangle must have three sides?

The way ahead, according to the Ministry of Education, is to “use maths to develop critical awareness about wider social, environmental, political, ideological, and economic issues.”

According to the Ministry’s new Common Practice Model (CPM), what will help children learn this new kind of mathematical thinking, is something called ‘critical maths pedagogy’. The CPM tells us that children should be “encouraged to interrogate dominant discourses, including that maths is benign, neutral and culture-free”.

Teachers must no longer take for granted that arithmetic works the same for everyone. For example, whether two plus two equals four depends on a student’s cultural background. According to Jason To, President of the Ontario Mathematics Coordinators Association, if you insist that the statement, ‘two plus two equals four’ is an objective fact, you are guilty of "covert white supremacy."

Mr To is right to call out mathematics for its racism. The Arab mathematicians who gave us the concept of algorithms were heinous white supremacists. And the Indian mathematician Aryabhatta, who came up with the number zero, is known to have had a penchant for white hoods and burning crosses.

As always, the Ministry is right too. Critical pedagogy will make mathematics much easier for children to learn. If there are no ‘correct’ or ‘incorrect’ solutions to mathematical problems, it follows that any solution is as good as any other.

Even better, when young people leave school, getting into careers that require mathematical skills will be straightforward. Gone will be all the heavy mathematical lifting currently required to become an economist or engineer.

Having dispensed with the, frankly racist, idea that mathematical problems have ‘correct’ answers, designing a bridge will be a doddle. If mathematics is subjective, then so, by extension, are the so-called ‘laws’ of physics. And critical maths will come as a huge relief to those struggling to pay their mortgages in these days of rising interest rates.

All we need now is for reality to get with the new ‘critical maths’ programme.
Read more about the wisdom of Jason To

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