Hard News by Russell Brown

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Hard News: Budget 2017: How do we get out of here?

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  • Sam M,

    Genuine question: What are the biggest levers the government has access to to influence how the economy develops? I'm assuming, tax policy would be one of the biggest?

    How can the Opposition truly offer an alternative vision for the future if they will not change the balance of what and how much we tax?

    Also, I'm with Matthew. There have been heaps and heaps of improvements in productivity here and around the world but the spoils are no longer being shared. I don't see how we change this with tinkering around the edges.

    Auckland • Since Nov 2006 • 72 posts Report Reply

  • Sam M,

    The MOST frustrating thing I find about political discourse in this country is that those on the right throw out that the left is ideologically driven and would ruin the country when EVIDENCE suggests that is horses&ˆt and the opposite is true.

    A slavish devotion to lower tax and trickle down economics can be nothing more than ideology in this day and age.

    Auckland • Since Nov 2006 • 72 posts Report Reply

  • Rob Stowell,

    Beautifully expressed, Russell.

    Whakaraupo • Since Nov 2006 • 2110 posts Report Reply

  • Paul Conway, in reply to Bart Janssen,

    So I had a read through and I can’t say I felt better. It feels like you’re blaming everything on lazy unproductive workers.

    Not at all. NZ workers do some of the longest hours in the OECD. They (we!) just don't create much value from an hour at work compared to workers in other developed countries. So our wages are low and lots of NZers struggle to pay the bills.

    While economic geography plays a key role, there are plenty of policy aspects that could be improved. I talk about some of those in our paper on "achieving NZ's productivity potential". That paper also talks about poor management quality in explaining NZ weak productivity and innovation performance.

    But I don't really think of it as apportioning blame. But it is up to all of us - workers, management, policymakers and their advisors - to do what it takes to "get us out of here"!

    Wellington • Since May 2017 • 4 posts Report Reply

  • BenWilson, in reply to Sam M,

    Genuine question: What are the biggest levers the government has access to to influence how the economy develops? I’m assuming, tax policy would be one of the biggest?

    Since Parliament is effectively sovereign in the country, there is almost no way to answer that question. They can pass almost any law with a majority of votes. They can, for instance, compulsorily acquire property, seize control of assets, pass laws completely controlling economic activity, issue currency, etc.

    So presumably you're kind of more asking what is the biggest lever that they are actually likely to use. It's one of the great wins of an ideology that it can make people unable to countenance a lot of the options.

    Auckland • Since Nov 2006 • 10653 posts Report Reply

  • Kumara Republic, in reply to Sam M,

    Genuine question: What are the biggest levers the government has access to to influence how the economy develops? I'm assuming, tax policy would be one of the biggest?

    Mortgage-belt politics seems to strongly tie in to it. The usual rationale from Anglo-Saxon economic fundies is that raising taxes & spending would drive up interest rates, and hence mortgage rates with it. Rising mortgage rates = pissed off home-owners who almost always vote. John Howard used it in 1996, and Maggie Thatcher during the 1980s with the "right-to-buy" scheme.

    The one thing guaranteed to be a game changer would be a housing market crash. Bill English would likely be more scared of it than ISIL terrorists or North Korean missiles, because a crash would heavily discredit the very Anglo-Saxon Model he so adheres to, like the Great Depression did for the Gilded Age.

    The southernmost capital … • Since Nov 2006 • 5430 posts Report Reply

  • BenWilson, in reply to Kumara Republic,

    The one thing guaranteed to be a game changer would be a housing market crash. Bill English would likely be more scared of it than ISIL terrorists or North Korean missiles, because a crash would heavily discredit the very Anglo-Saxon Model he so adheres to, like the Great Depression did for the Gilded Age.

    Well it would screw up the wealthy classes a whole lot more than any of those are likely to. But for that reason, all stops would be pulled if such a thing seemed to be happening. Government would directly intervene to bail out the banking sector, and many other measures even more drastic could be taken.

    Auckland • Since Nov 2006 • 10653 posts Report Reply

  • Sam M, in reply to Kumara Republic,

    Yep. But in reality isn't that what we need (I'm a house owner too!).

    If you think of housing, fundamentally, as a human need (shelter) and therefore a cost rather than an asset in which to measure wealth, then you would want them as cheap as possible.

    Even if you accept there is some benefit to housing as a store of some wealth, the fact they have got so out of whack on real terms vs incomes means they need to come back some surely. No politician is willing to take that line.

    Auckland • Since Nov 2006 • 72 posts Report Reply

  • Bart Janssen, in reply to Paul Conway,

    NZ workers do some of the longest hours in the OECD. They (we!) just don't create much value from an hour at work compared to workers in other developed countries. So our wages are low and lots of NZers struggle to pay the bills.

    This I agree with. Except I think you have the cause and effect ass-backwards

    The low productivity environment is set up by low minimum wages not the other way around. Low wages support businesses that are inefficient. Low wages are a disincentive for the workers to work better as opposed to longer.

    I did read the document.

    Sorry but I'm feeling negative because this is depressing. I feel so much of our (your) focus is on helping businesses perform better but the actual people doing the work are not a focus. There is the assumption that if the business performs better then the workers will benefit - but nowhere is that enacted or enforced.

    I'd really like to see a stronger focus on the actual workers, not just importing better ones via immigration but figuring out how to structure things so that the worker has a reason (and mechanism) to improve their own productivity.

    All that said, some of the problem is our focus on incredibly low productivity industries like primary produce and tourism, both of which are terrible in terms of productivity per worker/hour.

    Auckland • Since Nov 2006 • 4460 posts Report Reply

  • Sam M, in reply to Paul Conway,

    Isn't the answer to make both labour and capital more expensive? That way, owners of capital are incentivised to ensure it is put to the most productive use.

    Increase the minimum wage, resume more meaningful protections for workers and move to taxes on capital assets.

    I'm interested in the fact we are less productive than Australia. The unions are much stronger there...

    Auckland • Since Nov 2006 • 72 posts Report Reply

  • Matthew Poole, in reply to Bart Janssen,

    Low wages support businesses that are inefficient. Low wages are a disincentive for the workers to work better as opposed to longer.

    Low wages are also a disincentive for the business owner to invest in technology (maybe what you meant by "work better"?). When you can get more widgets per hour by either buying a machine for $lots or by employing more workers for $peanuts, and one is an up-front capital cost while the other is an ongoing operational cost, $peanuts will generally win. If workers cost $fair, the calculus starts to tend towards the machine, which might mean some people don't get employed but also means that those who do are producing more while also being paid at a better rate.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • web-developer,

    I don't think this is about increasing productivity or anything of the sort. I think this is simply about workers getting paid a decent share for the work they do. That share has been declining since the 1980s and, if it were reversed, we could kiss WFF and the AS goodbye.

    Auckland • Since May 2017 • 1 posts Report Reply

  • Kumara Republic, in reply to BenWilson,

    Well it would screw up the wealthy classes a whole lot more than any of those are likely to. But for that reason, all stops would be pulled if such a thing seemed to be happening. Government would directly intervene to bail out the banking sector, and many other measures even more drastic could be taken.

    A bank bailout in the NZ context would be a no-win situation for the Anglo-Saxon model in any case. If Bill English rejects a bailout, his multiple property-owning supporters will go Brexitrump and feel betrayed. If he approves a bailout, those on Struggle St who've been lectured about austerity will go Brexitrump over the hypocrisy of "socialism for the rich".

    The southernmost capital … • Since Nov 2006 • 5430 posts Report Reply

  • Kumara Republic, in reply to Sam M,

    Increase the minimum wage, resume more meaningful protections for workers and move to taxes on capital assets.

    Also this: relax skilled migrant rules but in exchange, put a proper price on it. Then use the revenue raised for apprenticeships and repurposing "rust belt" workers (of which I consider myself one). It's probably the least worst solution regarding employers who wilfully hire migrants to skimp on training & suppress wages. Surprisingly, there's some form of such an approach in the very Anglo-Saxon economies of the USA & UK.

    The southernmost capital … • Since Nov 2006 • 5430 posts Report Reply

  • Paul Conway, in reply to Matthew Poole,

    Low wages are also a disincentive for the business owner to invest in technology (maybe what you meant by “work better”?). When you can get more widgets per hour by either buying a machine for $lots or by employing more workers for $peanuts, and one is an up-front capital cost while the other is an ongoing operational cost, $peanuts will generally win. If workers cost $fair, the calculus starts to tend towards the machine, which might mean some people don’t get employed but also means that those who do are producing more while also being paid at a better rate.

    I agree with that and see the challenge as moving from a development model based on working lots of hours and sweating resources (including the environment) to one based on using our available resources better. That's not easy but do we really have a choice?

    Wages in NZ are on the low side and the cost of capital is on the high side (because long-term real interest rates are higher than elsewhere). So the tendency is to employ people instead of invest in capital (and we are a capital-shallow economy). So there are plenty of jobs in NZ, but they don't pay that well. Busting out of that to a high-productivity equilibrium (if you'll excuse me) is tricky and needs lots of different policy areas lined up and pointing in the right direction. I do think that inflows of low-skilled migration are too high at the moment. in some ways it provides an easy option for firms. But the more sustainable long-term approach is to encourage firms to invest in skills and equipment to lift productivity and wages.

    Wellington • Since May 2017 • 4 posts Report Reply

  • Katharine Moody, in reply to Paul Conway,

    it is up to all of us – workers, management, policymakers and their advisors – to do what it takes to “get us out of here”!

    I disagree – it really is far more dependent on the right governance settings. I work in planning and with every amendment made to the RMA there are productivity losses. ‘Simplifying and Streamlining’ (as the government coined it) did nothing of the sort – in many cases quite the opposite. Planners have never been less efficient as a result of the additional onerous requirements – every time you add another issue of national importance or something else that must be given regard to – a whole bunch of additional considerations which have scant value in terms of environmental outcomes, but significant costs to a) investigate and b) implement through planning instruments.

    If government through legislative change and targeted work at the core (i.e., within the Ministry) had improved planning productivity over the course of the last nine years, then our second generation plans would be far, far, far less verbose and the number of overlays reduced considerably.

    There has never been any modicum of understanding – just a focus on speeding up processes that have actually been further complicated in leaps and bounds by central government "ideas" regarding improvement!

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • BenWilson, in reply to Matthew Poole,

    TBH, so long as the whole set up is about trying to put the incentives in the right place for the maximum extraction of profit to be directed where we want it to, I think it's always going to continue to be the losing game it has for decades. Where we are is simply a capitalism end-game. It's not like we haven't been trying to do this. Every country has - and a whole lot of them are doing it way better.

    If we step back from proposing solutions and look at what the actual problem is, it's that wealth distribution is highly unequal/unfair, and many do not have enough for life's basics. It most certainly is NOT that our society does not produce enough. Quite the opposite, it produces more per person than ever before in history. Even our housing problem is like this - there are actually hundreds of thousands of empty houses around the country, in the form of luxury baches. But talk of compulsory utilization is a non-starter. Homelessness is clearly not considered any kind of actual crisis, nor is the fact that most of our labour goes to paying rent.

    Between the last paragraph and this one I've literally had my tenant once again explaining why they could not pay the rent, that they were already behind on. It's a familiar story, the guy is a jib-stopper on a zero hour contract and his boss seems to be punishing him for trying to get holiday pay that he thought he was entitled to. The woman is a student of beauty therapy and has two children, one a year old. She offered to move out if we insisted, that she was horribly embarrassed about the missed payment. But I'd rather not evict them, since he has a credible payday coming from a private job, and they're good tenants otherwise, and have fought their way back from significant arrears before. They're really battling. I heard them having a raging fight a few nights ago over money, and she told me the power company disconnected them. They have every kind of creditor turning up to take stuff away from them. I could end up being left holding the baby if they they end up not being able to pay. Which sucks for me since I'm waiting patiently to get paid for my own work, too. We're more than a few paychecks from being unable to pay bills, but not that many more. Definitely nowhere near what our on-paper wealth would suggest.

    But I'm not going to make a family homeless if I can avoid it. I'd sooner put the rent down.

    Auckland • Since Nov 2006 • 10653 posts Report Reply

  • Neil,

    Any form of wealth redistribution by the State can be viewed as a subsidy. The State paying for the building of social housing is subsidising building companies and the employers of those who will either rent or buy those homes. Free GP visits are a subsidy to GPs.

    There are issues with WFF but it is away of redistributing to those with children from those that don't. The other way would be for employers to take over that role and pay parents more, or equivalently, non-parents less which might have its own issues.

    The discussion about how we move foward has been going on for two generation now - ever since Britain joined the common market. I have vague memories of The Knowledge Wave. What I think we tend to do is overlook how well we have done in terms of diversification and added value over the last few decades.

    And planning ahead is continually made more complicated by the ground figuratively and literally moving beneath our feet. Technology changes, markets change, disasters strike.

    Since Nov 2016 • 380 posts Report Reply

  • Joe Wylie, in reply to Neil,

    And planning ahead is continually made more complicated by the ground figuratively and literally moving beneath our feet. Technology changes, markets change, disasters strike.

    A good mum lets them lick the beater. A great mum makes sure to turn it off first.

    flat earth • Since Jan 2007 • 4593 posts Report Reply

  • Bart Janssen, in reply to Neil,

    Any form of wealth redistribution by the State can be viewed as a subsidy. The State paying for the building of social housing is subsidising building companies and the employers of those who will either rent or buy those homes. Free GP visits are a subsidy to GPs.

    That doesn't have to be true.

    You can tax all wealth gaining incomes, that would in effect redistribute wealth from the rich since they have many more tax-free wealth gaining options than the poor do.

    You can raise the minimum wage. That puts more money in the hands of the poor by forcing businesses to pay appropriately for labour. That also takes money usually from the rich.

    But yes some things are subsidies if you want to look at them that way. Free education effectively subsidises education for the poor since the rich can always afford private schooling. Similarly for health care.

    The question is, "why would that be a bad thing?"

    Auckland • Since Nov 2006 • 4460 posts Report Reply

  • Neil,

    The question is, “why would that be a bad thing?”

    I was suggesting it wasn't a bad thing - contra Russell's post suggesting a clear distinction between subsidies and more conventional govt welfare spending.

    Since Nov 2016 • 380 posts Report Reply

  • Tom Semmens,

    As has been pointed out, AI has limited ability to replace human workers with machines. However, big data is a completely different kettle of fish. What if your ISP knew what you wanted before you wanted it, when your connection was playing up before you did and what sort of data plan you’d like before you requested it? That is rapidly becoming possible, and when it does every retail and call centre job in the world will be redundant.

    My view is history will judge 2007 – the year of the first smart phone and when Hadoop turned up – as one of the watershed years of human history. Information from devices like smartphones and increasingly all your other appliances when subjected to distributed data apps capable of processing billions of record in a matter of seconds is what is going to drive the AI to call you and tell you that the supermarket has dispatched your groceries you didn't order but need, and when you get your groceries you’ll be pleasantly surprised it includes a light bulb for the one that just popped in the kitchen because the big data noticed when auto-analysing your line for power fluctuations a type of fluctuation that with a 99.85% probability indicated an immanent light bulb failure of that type in your house. And that sort of analysis is already possible, BTW.

    Humans moved from factories to the service sector with automation. Big data will wipe those jobs out as well.

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

  • Joe Wylie, in reply to Tom Semmens,

    ...when you get your groceries you’ll be pleasantly surprised it includes a light bulb for the one that just popped in the kitchen because the big data noticed when auto-analysing your line for power fluctuations a type of fluctuation that with a 99.85% probability indicated an immanent light bulb failure of that type in your house. And that sort of analysis is already possible, BTW.

    That sounds like a pale echo of Thomas Pynchon's tale of the sentient and immortal Byron the Bulb, tucked away among the many substories of Gravity's Rainbow. As a freak immortal bulb Byron attracts the attention of the hit squads of the evil global cartel known as Phoebus through Weimar and then Nazi Germany. "He will be screwed into mother (Mutter) after mother, as the female threads of German light-bulb sockets are known, for some reason that escapes everybody."

    Humans moved from factories to the service sector with automation. Big data will wipe those jobs out as well.

    Assuming that's true, do your insights afford you anything other than bragging rights? Perhaps, like Byron the Bulb, at best they'll provide you with an enhanced enjoyment of an inescapable fate: "He is condemned to go on forever, knowing the truth and powerless to change anything. No longer will he seek to get off the wheel. His anger and frustration will grow without limit, and he will find himself, poor perverse bulb, enjoying it. ... "

    flat earth • Since Jan 2007 • 4593 posts Report Reply

  • Tom Semmens,

    My point is that people are focussing on the wrong issue. Big data - be it light bulbs or "social investment" is an insidious and creeping reality that has the ability to make choice an illusion, and by extension create compliant populations manipulated by constant data enhanced surveillance.

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

  • Russell Brown,

    Relevant: at The Spinoff Gareth Shute talks to Dr David Galler about health, housing and the current "chaos of social policies".

    Auckland • Since Nov 2006 • 22834 posts Report Reply

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