Archive for the 'economy' Category

Slash and pray

Published
by
Steve Pierson
on December 4, 2008
in economy
. 3 Comments

The Reserve Bank has cut 1.5% off the official cash rate, bringing it down to 5%. The rate has now been cut 2.5% in just six weeks, an unprecendented slashing. Mortgage rates will drop as well, but perhaps not by as much because the banks (excluding Kiwibank) have to borrow most of their money from overseas for lending here and international credit is hard to come by.

The Reserve Bank should have been cutting rates much earlier as the economy started to slow due to the credit crunch and high oil prices. Instead, it pointlessly tried to fight the inflation coming from those oil price rises by strangling our economy with high interest rates. Now, at least we are finally getting cuts but they are so large that they amount to little short of panic from the Reserve Bank.

A plea to National

Published
by
Steve Pierson
on November 27, 2008
in climate change, economy, international and john key
. 91 Comments

Don’t let Key go abroad representing us again until he has had some diplomacy training.

I can’t believe, I literally can’t believe, the comments he has made in the UK. In addition to the comments yesterday, where he called the new carbon-offset airport departure tax “protectionism” and said it will lead to a “contagion effect”, he is now reported to have told British Prime Minister (and former Chancellor) Gordon Brown that his new tax policy is “not necessarily rational”.

Think about how this looks to the UK. Key has not actually done the job of Prime Minister for one day and yet here he is in the UK, a guest of the British government, criticising the policies of a government that has been in power eleven years, insulting them in the crudest terms. ‘Who does this guy think he is?’ British leaders will be asking themselves, ’some puffed up newbie presuming to tell us how to run our country’.

This is not how you do diplomacy, and it’s not how you do diplomacy because it doesn’t work. The UK doesn’t have to listen to us, least of all when we want them to change their policy on something as core to sovereignty as tax policy. If we want them to listen, we have to use constructive language (eg. ‘clearly, New Zealand is very concerned about climate change. We are also economically dependent on tourism and every year hundreds of thousands of people from the UK come to experience our beautiful country. We will be working with our British friends closely to see if it is possible to reduce emissions without making tourism from the UK to New Zealand unaffordable). Key’s comments have not been constructive or even nuanced, they have been plain insulting. Leaders are people too, be rude to them, attack their work, especially when you have just met them and have no experience of your own, and they will not look on your cause fondly. 

No, Key won’t a public dressing down from Brown over this, but that’s not how diplomacy works. The consequences will be far more subtle and far more insidious. Key will have helped to deafen the ears of UK leaders to our voice. National should keep him in New Zealand where he can’t do any more harm (to our international relations at least) and get the competent diplomats like Tim Groser out there to repair the damage so far as it can be.

Small-target governing

Published
by
IrishBill
on November 27, 2008
in economy and national/act government
. 28 Comments

Yesterday it was a $7bn rescue package. Today it’s preparing a contingency plan to bail out big business. But do we get details? Of course not.

I’ve got a bad feeling deep in the pit of my stomach that there’s no real plan here, or if there is it’s one that the public wouldn’t like if it was ever presented as a whole.

Much like National’s pre-election “policy” releases such as the broadband policy, these two announcements seem more calculated to create headlines hooked into hot news stories than to provide a coherent plan to deal with reality. A kind of “Look! We can sound like overseas grown-ups too.” approach.

In fact listening to Bill “window dressing” English obfuscating on morning report this morning I got the sense of a finance minister who hasn’t quite realised he’s the finance minister yet.

Don’t get me wrong, I’m hoping now we’re stuck with this lot they make a decent job of running my country. But until I see some detail and get some reassurances the Nat’s understand their five year election campaign is over and they now need to come up with the detail I’m not holding my breath.

After all, they’re going to be expanding our debt to do this. We deserve the chance to get a good look at what they plan to spend our money (and future taxpayers’ money) on.

PPPs? No, please

Published
by
Steve Pierson
on November 26, 2008
in economy, national/act government and transport
. 23 Comments

I’ve never seen the sense in Public-Private Partnerships. How is it ever going to be cheaper to get a private profit-making company to come on-board and take the risk for developing a piece of public infrastructure? The Government has to give them a good deal so they can make a profit, and the Government has to step in when things do go wrong because you can’t have major pieces of infrastructure vital to your economy going offline every time some company collapses. It’s not cheaper to use PPPs, it’s more expensive, more complicated, and more risky. PPPs have never been more than a tool for getting spending off the books by hiding the immediate capital costs of construction in the long-term payments to the private contractor.

But it turns out they’re not only a bad deal for the taxpayer, businesses are increasingly hesitant about PPPs. Fletcher Construction says that, while it will bid for PPPs if National/ACT puts them up it would prefer to contract in the traditional way, which leads to quicker construction anyway:

If the aim was to bring projects to fruition quickly, making them PPPs would be a retrograde step, as so much time is involved in setting up the legal framework between participants in the project, [Mark Burns CEO of Fletcher's] said. He also questioned whether private sector funding would be viable in the current credit environment without Government guarantees, which nullified the transfer of risk to the private sector.

Some of Fletcher’s biggest roading projects this decade have been building the $300 million Northern Busway and upgrading Grafton Gully and the Central Motorway Junction.

The submission said New Zealand was too small to make the formula work other than in a handful of projects.

“Fletcher Construction formed the view years ago that there were few roading projects in New Zealand that would have the traffic volumes to justify the full transfer of risk to the private sector,” the builder said.

Sometimes benefits of transferring the risk of PPP projects to the private sector were illusory, it said, citing the British Government’s bailout of Metronet, the private operator of the London Underground.

Binns suggested that if the transfer of risk was not complete, the true benefits of PPPs came down to an analysis of the funding costs, and there was a strong argument that the Government would be better off just raising debt, potentially through infrastructure bonds, to do the project using other traditional methods of contracting.

The builder also cited major “upfront paperwork and contractual costs” on PPPs, saying the time and cost involved in this phase was significant and tended to counter any savings in the design and delivery phase.

The departed

Published
by
Steve Pierson
on November 26, 2008
in climate change, economy, john key and national/act government
. 56 Comments

The UK has announced plans to increase departure tax from its airports for flights outside Europe to pay for offsetting their carbon emissions. This is part of the worldwide response to climate change - countries are making emitters pay and even aviation, which is excluded from Kyoto, is now being targeted (quite rightly too, it is one of the fastest growing emission sources).

Of course, that’s bad news for New Zealand tourism. Over quarter of a million people visit New Zealand from the UK each year. Adding hundreds of dollars to the cost of their ticket will decrease their numbers and leave them with less to spend here.

So, what should we do about it? Our one bargaining chip is a clean, green image. If we could show that we have a strong emissions reduction programme, we could argue that tourism to New Zealand is overall very low on carbon - people might burn a lot of fuel getting here but little once they are here. It’s kind of like our argument against food miles - sure, it means burning some fuel to transport our lamb around the world to Britain but we emit less greenhouse gas producing it than UK farmers and, overall, we’re more environmentally friendly. Of course to make that argument, National/ACT would have to show they are committed to tackling greenhouse gas emissions. Since they are going to have a select committee to investigate whether everyone else is wrong and climate change is (in Key’s words) “a hoax”, that will be a difficult argument to make.

So, our one shot at some kind of exemption from this tax has already been sabotaged by Key’s incompetent handling of climate change; his failure to understand it is now a foreign relations and trade issue, not just a way to shore up support from ACT, the farmers, and business. But then he’s gone and made it worse. When you are a little country and you want a big country to not do something bad to you, you have to remind them what a good little country you are, what good friends you are (like Clark did last year when our special visa status was under threat). What you don’t do is mouth off that you worry it will have a “contagion effect“, as if British policy is a virus that might infect other countries, as if countries responding to climate change is the new communist domino effect. And you don’t have your spokesperson call it “protectionism“, one of the dirtiest words in international relations.

Those inept comments have sunk any slim hope we might have had of getting an exemption from the departure tax.

Test number 2 for Key, fail.

Free trade no answer to credit crisis, part 2

Published
by
Steve Pierson
on November 25, 2008
in economy and international
. 12 Comments

I’m a bit concerned to see people welcoming APEC’s commitment to re-igniting the Doha Round of free trade talks as if they are a solution to the economic mess we are in now. I’ve already noted that more free trade, while desirable if done fairly, will not fix the problems that have lead to this crisis but, just as importantly, there is a not ‘more free trade’ button we can just push and feel the effects of straight away.

The Doha Round has been a mess for years now. Very, very basically, it is meant to open up the developing countries to more first world investment and, in turn, open up the agricultural production of the US, EU, and Japan to competition from the third world (and first world food exporters like us). It would do that by removing subsidies for farmers in the first world, which are absolutely massive.

The problem is, the farmers rather like their subsidies and, as in New Zealand, farmers present a lobby group with power out of all proportion to their numbers in the EU and US*. That barrier to the first world coming through on its side of the basic bargain that Doha is all about. And it is a barrier that has not disappeared.

Yet, let us imagine that somehow the EU and US do manage to overcome resistance from their farmers. Would we then have a massive economic boost from more free trade right away? No. Even if the outline of the deal could be agreed tomorrow, there would still be a months, if not years, long process of sorting out the details. These trade deals are incredibly complex and every element of them needs to get approval by the member countries, all 153 of them. Even once there is a deal signed off, it has to be ratified by a certain number of members before it comes into force, a process that also takes a long time (five years for Kyoto, I think it was). And, even then, reductions in trade barriers do not happen immediately. Typically, there is a lead-in period of several years so businesses can adjust before tariffs and subsidies are cut, and they are gradually cut in steps over periods of up to a decade.

The long and short of it is even if by some miracle they break the deadlock at the next meeting and Doha progresses forthwith, we’re not going to see any economic effect from it for years. To think a free trade deal that is years away can help us now displays the same level of economic understanding as thinking tax cuts can close the wage gap with Australia - ie. an all too common one.

In contrast, much needed reforms of the finance sector, breaking up the ‘too big to fail’ banks and dividing the operators in different markets off from each other, could take place in months and get the markets functioning again without the constant fear of another giant tumbling sending cascading failures through the other finance firms, which is what is paralysing the system now.

But, no, so much easier to turn to the free-trade panacea, instead.

*(ever wondered why we are suddenly all into converting food crops into ethanol for cars, a technology that has been around for decades and may not actually reduce greenhouse gas emissions? Because George Bush subsidised it to win crucial votes in the rural battleground states in the mid-West)

Free trade no answer to credit crisis

Published
by
Steve Pierson
on November 24, 2008
in economy and international
. 13 Comments

Free trade is basically a good idea. We live on a world of limited resources, we should use those resources as efficiently and sustainability as possible. Trade barriers that distort the costs of production in different countries undermine the efficiency of resource use. Ideally, we wouldn’t have them - but we would also need consistent labour and environmental standards between countries so that we don’t end up distorting the use of resources in a way that advantages those with weaker standards instead of those with the most efficient processes.

It would be a mistake, however, to think that free trade is an answer to the financial crisis we are facing right now. The financial crisis was not created by trade protectionism, it was caused by insufficient controls on greedy and irresponsible money traders. So, more free trade isn’t go to address the underlying problem with our global economy, it’s just going to give it a fleeting boost. It’s a bit like giving caffeine to a seriously injured person. Sure, they’re going to feel better for a while but once that passes, they’re still going to be in trouble unless you start treating what’s actually wrong with them.

Indeed, our experience increasingly says that free trade without proper regulation of international capital creates more trouble than good. By opening themselves up, countries are left at the mercy of money traders who have the power to collapse currencies and plunge economies into chaos, and can have a profit motive to do so without any responsibility for the consequences of their actions on ordinary people. We only need to look to New Zealand for an example - we have been subject to several attacks on our currency which have hurt our trade and we are constantly threatened with capital flight if we want to implement policies that are good for New Zealand but bad for rich foreigners’ profit margins.

That the leaders at APEC have jumped on the Doha Round of free trade negotiations as a response to the financial crisis is a cause for concern. It looks like they are dropping much needed reforms of the finance markets into the too-hard basket. Sure, a bit more free trade might mitigate the problems for now but, soon enough, we will again be paying the price for letting gamblers play with the fate of our economies.

Time for Keynes’ real ideas

Published
by
Steve Pierson
on November 23, 2008
in economy and international
. 18 Comments

The article below is well worth a read for anyone concerned about the global economic crisis. It looks at Keynes plan for managing the balance of international trade. It is imbalances in the system that we have now that leads to economic crises and fuels the speculative markets, especially the currency traders. It is the collapse of these speculative markets, because the participants are greedy gamblers and inadequately regulated, that has landed us in this economic crisis. 

 

John Maynard Keynes had the answer to the crisis we’re now facing; but it was blocked and then forgotten.

By George Monbiot. Published in the Guardian 18th November 2008

Poor old Lord Keynes. The world’s press has spent the past week blackening his name. Not intentionally: most of the dunderheads reporting the G20 summit which took place over the weekend really do believe that he proposed and founded the International Monetary Fund. It’s one of those stories that passes unchecked from one journalist to another.

The truth is more interesting. At the Bretton Woods conference in 1944, John Maynard Keynes put forward a much better idea. After it was thrown out, Geoffrey Crowther - then the editor of the Economist magazine - warned that “Lord Keynes was right … the world will bitterly regret the fact that his arguments were rejected.”(1) But the world does not regret it, for almost everyone - the Economist included - has forgotten what he proposed.

Continue reading ‘Time for Keynes’ real ideas’

Key’s first test - fail

Published
by
Steve Pierson
on November 22, 2008
in economy, international and john key
. 43 Comments

Well, John Key took my advice and gave a speech at APEC different from the pro forma MFAT-written speech that might have been expected. Unfortunately, it’s still all style and no substance, all bark but no bite.

Key is scathing of his fellow money-men for taking on more and more risk; he accuses them of being reckless. He says there needs to be more regulation of these “reckless” money-men (although one has to wonder how long he has believed these businesses are behaving badly, given he has most of his money invested in financiers Merrill Lynch).

So far, so good. He’s saying what the Left has been saying all along, and the Right is now conceding - the financiers are greedy and neoliberal de-regulation has permitted them to gamble too much with the result that the rest of us have ended up carrying the can for the problem they created (surprising he never said it during the campaign when he was making capital off his finance experience).

But, unfortunately, this is where he stops, whereas it should be where he is just beginning. He calls for regulation but offers no substantive suggestions for what regulation is needed; says reform is needed but not what reform that should be. Which means he’s not actually saying anything; it’s just empty bluster. In a disturbing continuation of the fluffiness that characterised his time as Opposition Leader, Key identifies a widely recognised problem and then says ‘we need to do something about that’. Real leadership is about providing solutions. So far we’ve seen none of that from Key.

This was Key’s first major test; his chance to make an impact on the international stage. He gets a partial credit for identifying the problem, and a bonus mark for rhetorical style, but on substance, the important stuff, he fails badly.

Credit where it’s due

Published
by
Steve Pierson
on November 19, 2008
in economy, media, national/act government and wages
. 29 Comments

It’s exam season for high school students. So, for 10 points explain how the following statement (in the ACT-National agreement and repeated uncritically by the media) can be true,

closing the income gap with Australia by 2025… will require a sustained lift in New Zealand’s productivity growth to 3 per cent a year.

given:
- productivity is just one factor in GDP (production = inputs x productivity, basically the amount produced depends on how much you put in times how much you get out per unit of what you put in)

-productivity growth tends to move in the opposite direction to the amount of labour and capital input growth - ie. productivity actually usually increases faster when GDP growth is slack or after a recession and productivity growth slows when GDP goes through a sustained period of rapid growth

- incomes (ie. wages and salaries, the price of labour) is a result of supply and demand for labour, not the productivity of labour. Indeed, wages usually increase fastest when there is a shortage of labour and rising demand while productivity increases fastest when there is an abundance of labour and falling demand (because only the ‘highest quality’ labour is used).

For extra credit: why is it that the supposedly economy-focused political parties and the business/political media seem to lack a fundamental understanding of economics?

[Update: I should add that I am not, of course, against productivity growth. I am just against people buying the idea it is some kind of panacea. There are very good reasons why the Right has chosen to focus on productivity: every other metric of economic performance has been too good. We have outgrown our trade partners, unemployment has ben at record lows, and wages risen have risen at record rates. Productivity growth is counter-cyclical, slow when the economy is at full tilt, so it has been a useful stick to hit a government in good times. It is also useful because it can be claimed, usually without evidence, that government regulation -ie work rights - is impeding productivity; if you wnat to remove work rights, first argue we need faster productivity growth]

Time for a Green New Deal

Published
by
Steve Pierson
on November 15, 2008
in climate change, economy, environment, international and workers' rights
. 34 Comments

With a masterful awareness of the import of his actions, President Roosevelt termed his economic program to lift the US out of the Great Depression ‘the New Deal’. Laissez-faire capitalism, whereby the ‘invisible hand of the market’ ruled, had failed to fulfil the conditions of the social contract (a fair distribution of wealth between capital and workers). A new deal was needed to restore the living conditions of workers and, ultimately, to protect capital from revolution. The New Deal replaced hands-off government with active state capitalism - the Government increased participation in the economy by investing in new sectors and job-intensive infrastructure, created better unemployment benefits, and improved regulation of financial markets. It also increased the legal powers of organised labour to put unions on a more equal footing with capital. Corporatism - active, cooperative economic management by capital, labour, and the State -was introduced. New Zealand’s First Labour Government followed the Democrat’s lead with their own program of infrastructure investment, work rights, and improved social security.

Now, we face a crisis on a similar scale to the Great Depression. Neoliberal capitalism has failed. Not only have gamblers masquerading as financiers crippled the world’s credit markets but we are hitting up against the reality that the natural resources on which we build our economy are limited and in decline. The credit meltdown, peak oil, the food crunch, and climate change all look like very different things but the problem arises from the same failed model(s) of economy management. Luckily, we can solve all these problems with the same set of solutions.

The idea of a Green New Deal is gaining momentum in political circles around the world. The United Nations Environment Program has released a template for this Green New Deal, focused on getting us off unsustainable economic practices, creating jobs, and building natural capital. It highlights five areas that we need to make centre-pieces of our economies in the 21st century:

- Clean energy and clean technologies including recycling
- Rural energy, including renewables and sustainable biomass
- Sustainable agriculture, including organic agriculture
- Ecosystem Infrastructure
- Reduced Emissions from Deforestation and Forest Degradation (REDD)
- Sustainable cities including planning, transportation and green building

Add to that stronger workers’ rights and greater restrictions on the concentration of wealth and control of resources in a few private hands.

Luckily too, we have a leader for the times. Obama is the person with the power and vision to lead such a program, and the leadership and oratory to bring the world with him. If he fulfils his promise. We can look forward to the emergence of exciting and forward looking innovations in the coming years.

There’s no reason why the National/Act government can’t follow the same path but, unfortunately, ideology isn’t always subject to reason. With a money-man heading a government of climate change deniers, free-market radicals, and head-in-the-sand conservatives we are unlikely to see the change we need in New Zealand in the next three years.

So, the Left needs to start building its own Green New Deal plan with which to contest, and win, the 2011 election. We will be starting from behind other countries and we’ll need to hit the ground running. In the meantime, the Left parties can get elements of the program on the agenda with private members’ bills. Thought also needs to be given as to how the Left will win control of the councils in the 2010 elections - councils have a lot of control over infrastructure and urban planning, central aspect of the Green New Deal. Right now, the Left is too fractured at local level, the Left vote is split between too many disorganised candidates, allowing rightwing candidates to prevail with minority support.

The neoliberal system has failed. To protect our standards of living with we need to rebuild the foundations of the economy and ecology that underpin it. The Green New Deal is coming.

Stimulating

Published
by
IrishBill
on November 14, 2008
in economy
. 48 Comments

One of the things I like about being left wing is how often the best moral decision is also the best economic decision.

Take economic stimulus for example. In a recession it’s the most vulnerable such as beneficiaries, low paid workers and youth that are hit worst because they are the ones least likely to have any financial backstop. The good thing is the best way to ameliorate the effects of a recession on society as a whole is to help these people out.

If the recession is likely to be short-term then it’s possible to moderate it by increasing consumer spending and the best way to do that is to make sure that those at the bottom have more money to spend because it is those at the bottom that are more likely to spend in their local economy. It’s also those at the bottom that are more likely to need that money because they won’t have budgetary capacity they can cut.

But you can’t shop your way out of a long term recession. When things are looking like they are going to be bad for a while you need to make sure that the money you are using to stimulate the economy is more tightly targeted. The money still needs to go to the lower income brackets but it needs to do so in a more controlled way. One of the best ways is by bringing infrastructure forward and increase investment in it. Anther way is to tie receipt of this money to education and training. This ensures that the money that you are using to flatten the recession can be fed through the economy in a more controlled way using jobs and training allowances. That also means you’re building productive capacity so full advantage can be taken of the next boom.

Of course the other option is to provide say 80% of your tax package to say the top 30% of earners and hope for some trickle down. But faced with a long recession these earners tend to use the money to pay down their debt or just put it in the bank in case they need it later on. That’s about as stimulating as a Peter Dunne speech and, when it comes at the opportunity cost of jobs and income for the most vulnerable New Zealanders, it’s about as moral as the way he operates.

The first test

Published
by
Steve Pierson
on November 13, 2008
in economy, john key and national/act government
. 190 Comments

Michael Cullen has released the latest economic and fiscal update, the one Key commented on in today’s papers but which he refused to reveal the details of to the public. Basically, it’s pretty bad news. How Key is responding or, rather, not responding to this first test is even worse news.

Since the Pre-election economic and fiscal update less than two months ago, the Treasury’s forecasts for economic growth in our top 20 trade partners have plummented - for example, next years’ projection has gone from 2.8% to just 1.8%. Commodity prices and export demand is expected to be hit significantly, leading to lower growth and a higher current account deficit. Unemployment is now predicted to hit 5.7% not 5.1% as in the PREFU and wage increases will be lower, perhaps below inflation. Lower tax revenue will see government debt blow out by another $5 billion on top of the so-called ‘decade of deficits’ projected in the PREFU.

The global financial crisis is not National/Act’s fault, just as it wasn’t the Labour-led government’s fault. But they do have a choice as to how they respond. National/Act’s plan seems to be to carry on as if nothing has happened, pushing through the same agenda that they announced months ago without modifications for changed economic situation. It’s worth noting that the cost of National’s tax package additional to Labour’s is about the same size as the increase in projected debt over the same period. In other words, National could prevent this debt blow out by cancelling its tax cuts for the rich. It won’t do so, of course. National should make the creation of useful jobs a priority, as Labour intended to do to keep benefit numbers and crime down, and income and tax revenue up. But it won’t do that, either.

We said it before the election and bears repeating now. It is not just the declared policies of a party that matter but their underlying ideology, the set of principles which shape their response to emerging issues. National might have presented that ‘Nice Mr Key’ facade and some appropriately moderate policies but underneath he is rightwinger leading a conservative party. His response already looks like being a typical conservative response - bury your head in the sand and hope everything turns out OK in the end. That is not the response we need right now.

Key’s ‘no worries, folks’ response to this latest update also makes me wonder if Key really has bitten off more than he can chew. Does he have the strength to disappoint his supporters when it is in the longer-term interests of New Zealand as a whole to do so? Does he have the leadership skills and courage to actively steer New Zealand through these difficult straits or will he grimly stick to the pre-laid course as the storm hits us? So far, he has tried to downplay the issue, he evidently hopes it will just go away. Well, it’s not just going to go away and if Mr Key is not up to the job of confronting it that is not just a problem for him, it is a problem for all of us.

Cuts, three of the same kind

Published
by
Steve Pierson
on November 13, 2008
in economy and national/act government
. 36 Comments

From Stuff:

Mr Key said New Zealand had a significant advantage over other countries because official cash rates set by the Reserve Bank were high. “If that weaker scenario is anything like what it could be, then you will see significant rate cuts in New Zealand.”

Oh Christ. It was bad enough when he was trying to direct the Reserve Bank as Opposition Leader but to be making comments like this when he is, in effect, Prme Minister is beyond the Pale. Does this guy not understand that our constituional set-up gives independence from political interference to the Reserve Bank or does he just not care?

Of course, while the erosion of our constitutional seperation of powers is one thing to worry about, a more serious issue, in terms of everyday impact, is where National/Act is going to cut the billions it needs to keep the budget from blowing out while still giving tax cuts to the rich. There’s only a few programmes big enough to cut bilions out of them - health, education, Working for Families, benefits, Super, and the Cullen Fund. Where will the National/Act cleaver slice?

[turns out we've always used the term PM-elect, thanks mysterious stranger]

How to stimulate the economy

Published
by
Steve Pierson
on November 11, 2008
in economy, wages and welfare
. 9 Comments

During the debate over the economic stimulus package in the US earlier this year, Moody’s produced a model that shows which stimulus options result in the most increase in GDP per dollar of government spending/tax reduction.

I’ve highlighted the three options that are relevant to NZ (the Bush tax cuts are remarkably similar to the National plan - minor changes for low incomes, large open-ended cuts for the wealthy):

The results are clear and they make sense. If you want to stimulate the economy, giving more money to those who already have lots won’t do the trick. Instead, boost the incomes for low-income people and they will spend that money in their communities, stimulating growth and invest in infrastructure, which not only improves the framework for growth but provides jobs, raising incomes, which in turn creates more demand and more jobs.

If the National/ACT Government is serious about stimulating growth, they won’t cut the top tax rate. Instead, they will put that money in infrastructure and benefits.

More unemployed but more employed too

Published
by
Steve Pierson
on November 6, 2008
in economy, election 2008 and workers' rights
. 14 Comments

Unemployment has risen to 4.2%, the first time in four years it has topped 4%.

That’s lower than the experts expected, they thought the rate would blow out to 4.5% or more. But that’s the power of a full employment policy. Because we’ve had such low unemployment for so long, employers are reluctant to lay off staff or cut wages during a lean period. The greatest achievement of the Labour-led governments to date has been getting unemployment down.

We also have to understand what ‘unemployment is 4.2% means’. It means that of the adults who say they are in work or looking for work, 4.2% don’t have work. So, there’s another variable at play, not just the number of jobs but how many adults are participating in the work-force. Because labour-force participation changes, it is possible for employment and unemployment to grow at the same time if labour-force participation grows. That’s what happened last quarter. Labour-force participation rose from 68.6% to 68.7%. The number of employed people rose 2,000 (0.1%) to 2,172,000 while the number of unemployed rose 6,000 (6.3%) to 94,000. There are 22,000 more jobs now than there were last year.

The problem is that our economy is no longer adding jobs fast enough to get all new members of the workforce into work. That’s a bad thing but at least our economy is not yet shedding jobs.

That’s unlikely to continue to be the case. The mess the financiers have made of the global economy will create damage here, and there will come a time when the number of jobs starts to fall. And that’s why it’s good to see Labour and its allies focussing on policies to create more worthwhile jobs. As Clark said last night, their economic stimulus package is about “jobs, jobs, jobs”.

Economy healthier than expected

Published
by
Steve Pierson
on November 4, 2008
in economy, election 2008, wages and workers' rights
. 34 Comments

The latest government accounts show the economy is in better condition than was expected. Tax take was $500 million higher than expected due to higher-than-expected income tax revenue. That means more money was being earned from wages and salaries than Treasury had forecast; in other words, unemployment is not rising as fast as Treasury had expected. The other effect of employment holding up better than was expected is that government spending on benefits was lower than forecast. Company profits are down, perhaps due to losses on the international markets and the sharp drop in the exchange rate. GST is in line with expectations, so domestic spending is doing OK. All in all, really good news and indicates, as Don Brash says, we are in the best possible condition to weather the international financial crisis.

That crisis has hit the Government’s financial investments. They are worth $1.8 billion less than was expected before the meltdown hit. Markets will go up and down, so the Operating Balance Excluding Gains and Losses (OBEGAL) just looks at the balance between revenue and spending. As Treasury says “By excluding gains and losses the OBEGAL gives a more direct indication of the underlying stewardship of the Government than the operating balance”. That was a $900 million surplus in the three months to September, $500 million more than expected.

Since the end of that quarter, the Government has introduced tax cuts and new spending which will lower the surplus. The new financial statements don’t update Treasury’s forecasts for coming years but, with employment apparently holding up better than they thought, it is likely the deficits in coming years will be smaller than projected.

Gross government debt is a little higher than expected at 17.8% of GDP (vs 17.2% forecast) but the net financial position was right on forecast - net assets of 5.7% of GDP.

So, as good news as there could be given the international situation. There was nothing that could be done to avoid losses for our financial interests when the world markets went into free-fall and company profits have also been hit but the real economy and, most importantly, jobs and wages are doing better than expected.

[as a side note, Treasury has consistently under-forecast employment and over-forecast unemployment for years; ever since unemployment went under 4% four years ago, they've been saying it would soon be back above 4%. I wonder if their model fails to account for the self-reinforcing effect of full employment.]

SSTimes finds more $ in the pocket

Published
by
Dancer
on November 2, 2008
in economy and election 2008
. 22 Comments

From this mornings SSTimes:

New research has revealed a dramatic reversal in financial fortunes for the average Kiwi family, which is now $60 better off each week than it was six months ago. Falling mortgage costs teamed with the government’s October 1 tax cuts and a beefed up Working for Families package are the main reasons for the windfall, with a slight drop in petrol prices also helping.

Pundits are divided on whether the reversal will boost Labour’s chances when voters go to the polls on Saturday, but say it will help our recovery from the global financial crisis.

So do we think it is going to make a difference to Saturday’s vote? We’ve moved on quite a long way since backpocket issues took on such prominance. Having a bit more money might not be at the forefront of people’s minds as a positive, but nor is the lack of it the irritant it once was.

Standard scoop: Another senior Nat failed to disclose conflicts

Published
by
Steve Pierson
on October 28, 2008
in corruption, economy, election 2008, john key and national
. 31 Comments

Last month, Key lied when he was asked whether he had more Tranzrail shares, over which he had failed to declare his conflict of interest. On Sunday, it was revealed on The Standard that Key had also held shares in Fletcher Challenge Forests, which was campaigning for the Government to buy the rails off Tranzrail, at the same time as he was using his powers as an MP to gain information on the prospects for that sale. He didn’t reveal that conflict of interest, either. But Key wasn’t the only Nat breaking the rules.

In between 2002 and 2005, Gerry Brownlee asked numerous written and oral questions, and gave numerous speeches about Contact Energy, and about government policy that relates to Contact Energy’s share price. He often criticised policies that would reduce Contact’s profitability - environmental standards, Kyoto, the establishment of the Electricity Commission - and asked questions on specific Contact projects.

Here is an example from 2002 of just one of the instances in which Brownlee used his powers as an MP to obtain information on Contact Energy:

Gerry Brownlee: In the light of that answer, why has Contact Energy put on hold its combined-cycle gas plant planned for Otahuhu [Hansard,8 Oct, 2002]

Here is another from 2003

Gerry Brownlee: Can the Minister confirm that the Government is considering establishing a systems operator who will buy and sell all generated electricity, doing away with the market and destroying all incentives for investment in new generation that we desperately need?

and one more from 2003

Gerry Brownlee: Is the Minister aware that similar comments from the Prime Minister last week wiped millions of dollars off the capital value of Contact Energy; can he tell us whether he has discussed those threats with the Minister for State Owned Enterprises; and can he also tell us how bringing generators to their knees helps the current crisis?

He seems a little upset about the drop in Contact’s share price, doesn’t he? Well he might, because Gerry Brownlee was a Contact shareholder; he had a financial interest in Contact’s performance and share price. In none of the instances I’ve seen where Brownlee refers to Contact or its interests does he reveal he is a shareholder. He first made it public when the Pecuniary Interests Register came into force in 2006. Prior to that, he did not declare his conflict of interest as he was required to do, even as he used his privileges as an MP to obtain information that gave him special information on the value of those shares.

I discovered Brownlee’s shareholding while examining the share registers of eight New Zealand companies. My primary purpose was to ascertain whether John Key had any holdings in those companies (more on those holdings later); I only checked whether Brownlee has a holding in Contact on a whim. So what are the odds that there are not more, undiscovered, conflicts of interest that the Nats have kept secret?

As with the secret agenda tapes, what we are seeing here is almost certainly just a small snapshot of the full picture. Even more concerning than the secret conflicts of interest that have been discovered is the knowledge that this is just the tip of the iceberg.

[Update: Brownlee's shares disappear in 2006, when he creates a family trust. Presumably, the shares went into the trust. Parliamentary procedure expert Idiot/Savant argues that, while listing an interest in the pecuniary interests register (as Brownlee has done with his trust) removes the need to reveal conflicts of interest under SO166, a conflict arising from assets within a trust that are not named in the register still needs to be revealed. To put it bluntly, if Brownlee stills owns the shares in his family trust, he still needs to reveal the conflict of interest notwithstanding that he has registered his trust.]

Labour’s labour policy good for labourers

Published
by
Steve Pierson
on October 27, 2008
in economy, election 2008, labour, wages and workers' rights
. 18 Comments

Labour has unveiled its work rights policy, and it’s a good one:

- minimum wage increases at least at the rate of inflation or the average wage increase, whichever is higher. That would bring it to nearly $15 a year by 2011.
Why they didn’t just commit to $15 like the rest of the Left, I don’t know

- enable multi-employer collective bargaining.
Forcing union members to negotiate separate deals for the same work at different workplaces was one way the Right tried to break the unions when it introduced the Employment Contracts Act. It creates a tremendous strain on resources for unions. MECAs remove that strain and lead to better deals.

- prevent freeloading.
Currently, many businesses automatically pass gains made by union members on to non-union members. It is a union-breaking tactic that discourages union membership, which ultimately leads to worse work conditions. Preventing freeloading will encourage union membership and put workers in stronger negotiating positions.

-full employment rights for workers in triangular employment arrangements, on contracts, or employed by labour hire companies.
Currently, most labourers and other low-skill workers are employed in these kinds of arrangements and they have no job security, it is excellent that Labour would change that.

- statutory minimum standards for redundancy.

- retraining allowance for workers who have been in the workforce for at least five years and have been made redundant or have been in the workforce for ten years and wish to upgrade their skills or retrain in a new area.

- permit strike action, if necessary, when employers initiate restructuring/outsourcing which undermines a collective agreement, during the term of that agreement.

All excellent policies that have been welcomed by workers’ rights groups. I do have to say, though, what is wrong with Labour’s thinking that they release their labour policy in the afternoon on Sunday and it isn’t fronted by the PM? No wonder it got zero coverage You’re the Labour party: release your labour policy on Labour day at a major speech by the PM to workers. 

Not too late for a re-luanch, though.