Wednesday, August 28, 2013

Normanomics and Mighty River–Mightily wrong

It is no doubt highly predictable that the our friend from Queensland would find the MRP result – a profit increase of 69% on last year – an outcome he couldn’t resist having a poke at. And he’s all over it – money denied the taxpayer, dividends they “really” own and so on.

Of course he fails to note:

  • that as an SOE it never produced a growth result like this;
  • that last year was probably the toughest yet to sell energy in;
  • that sales grew only slowly;
  • that generation was down; thus,
  • productivity and the MRP diversification paid off in spades.

The taxpayer does in fact still own 51% of MRP and numerous of the investors both institutional and individual are in fact NZ taxpayers.

Biggest killer was the share price being spooked by the threat of Control Freak Central running all over the electricity market in a reform which would have Stalin clapping.

Tuesday, August 27, 2013

Minimum Wages

Australian experience with a policy many in NZ argue is “humane” and “only fair” and “civilised”. Read about the civilising influence of minimum wages in Western Australia and Australia more generally.”

John Stossel looks at the evidence on Australia's minimum wage:

IA guest on my show once said that Australia shows high minimum wages work. After all, Australia has a much higher minimum wage (about $15 U.S. dollars per hour) and lower unemployment (5.7%.)

I responded on my blog that Australia's teen unemployment rate is bad -- 16.5% -- and that maybe it's because employers don't want to hire inexperienced workers for such a high wage.

But I was wrong to cite that number the way I did, as a writer at the (usually clueless and far left-wing) Columbia Journalism Review points out. First, the U.S. teen unemployment is even worse (24%). Second, the Australian minimum wage is actually set at less than $15 for teens. For kids under 16, the minimum is lower in Australia ($5.50 USD) . Older Australian teens, though, have a higher minimum wage than Americans, as the Australian minimum wage increases by age until it hits about $15 at age 20.

Just a few months ago, New Zealand followed Australia's lead in lowering its minimum wage for teen workers. American politicians should do the same.

Or should they? If minimum wages kill jobs, then why is Australia's unemployment rate lower than America's? It could be because of a huge mining boom, which drove salaries for truckers up to $150,000. Or because Australia is relatively close to China and benefits the most from that country's booming economy and trade. Or something that I have no clue about, but that the market has already figured out.

What I do know is that a higher minimum wage kills jobs. It does that in the U.S. and in Australia. In a 2004 study published in the Australian Economic Review, economist Andrew Leigh looked at what happened after Western Australia increased its minimum wage compared to the rest of Australia.

He found: "Relative to the rest of Australia, the [percentage of people employed] in Western Australia fell following each of six [minimum wage] rises." (Study here, update here.)

Another Australian economist, John Humphrey, summarizes the findings this way:

"[Leigh found] that for each 1 percent increase in the minimum wage we can expect... [to lose] 96,000 jobs" in Australia.

In his paper, Leigh cites many other studies that find similar results in the United States, and concludes:

"Australian minimum wages do 'bite', but it is not clear that they bite more fiercely than in America."

From the Future of Capitalism blog.

Sunday, August 11, 2013

Keep your “nudges” to yourself thank you….

There is more than a bit of “nudging” goes on in NZ. Nudging is based on the idea that a little gentle persuasion – for instance enrolling people in KiwiSaver “as the default” and into a “default provider” is “ok” since they can “get out” or change (in the case of a disliked default provider).

Various behavioural economists have used the research to justify this “with a gentle push” approach as being sound (on paternalistic grounds – mother still knows best, she’s just more gentle these days so that’s ok).

Leaving aside the questionable ethics of this sort of arrogance, Prof Don Boudreaux of George Mason University explains below why the policy process involved is flawed and dangerous…..

I don’t have the book readily at hand, but in Cass Sunstein’s 2013 volume Simpler– which I reviewed here – he uses his “libertarian paternalist” thesis to justify Uncle Sam’s resort to ever-stronger “nudges” to prevent people from smoking cigarettes.  The increasingly large and explicit warning labels, the significant restrictions on advertising, and the extraordinarily high ‘sin’ taxes on cigarettes have not – in the view of Sunstein and most other “Progressives” – worked sufficiently to prevent smoking.  So stronger “nudges” are justified.

It’s fair to point out that even within “nudge” theory a particular real-world nudge can be insufficiently strong.  But what are the criteria for deciding whether or not a “nudge” is sufficiently strong?  Sunstein’s happy justification for ever-stronger government efforts to “nudge” us away from using tobacco use reveal – to me, at least – one of the weaknesses of “nudge” theory. 

That weakness is that the only practical criterion for judging whether or not the strength of the nudge is adequate is whether or not the activity sought to be reduced has in fact been significantly reduced by the nudge.  If that activity hasn’t been significantly reduced, the libertarian paternalist would say, “Ok, in this instance people in fact exercise their freedom to ignore our nudges; so although these choices are not the ones that we planners wish people would make, we must accept these revealed preferences as reality and leave people be.  No nudging people any further on this front.”  In contrast, the libertarian paternalist would say, “Our nudging must get stronger because people are still behaving in ways that we disapprove of.”

At least with plain dictate we can see transparently who is pushing who around.

Thursday, August 8, 2013

Its almost never as dramatic as you think–immediacy bias at work again……

Property growth rates Dec 1990 to Dec 2012. QV comment:

The current rate of increase in Auckland, at around 13%, is well below the previous two property cycles. This suggests that if we are in the middle of another cycle of growth, and if this cycle reflects the previous two cycles, then we could expect values to increase nearly twice as fast as they currently are in the coming years.

Is this any sort of justification for intervening ??????

Economy Wide Lessons as the lustre of white gold loses its shine

It is critical to understand that the issues for the NZ economy arising from the current Fonterra debacle  (as opposed to dairy farmers and Fonterra directors and managers) is assuredly not a "public relations" issue or one of "reputational management". The best PR firm in the world cannot resolve such issues through spin - nor should it try.

Calling for better "PR" is simply a form of denial.

Key problems from an economy wide perspective are:

1. Nowhere else to turn

The choice for producers has been narrowed by statute to Fonterra for some 90% of the market. There is virtually no diversity, depth or spread of processing in the industry. The statute prevents it. Dissatisfied producers have nowhere else to turn. All eggs in one basket – then we drop the basket.

2. No incentive to create somewhere else to turn

Neither is there any incentive to invest and develop processing capacity. With only a tiny part of the market available since Fonterra has 90% of it, why would anyone invest and grow. At best some niche processing - Sunlait and A2 style processors for example - might develop.

This matters...

not because Fonterra is necessarily "poor" or run poorly - it matters because reality has it that there will be mistakes and accidents in even the best of companies. When those inevitable mistakes happen economies with a diversified capacity and several choices are able to respond. At the moment we can’t.
3. Serious competition keeps firms seriously sharp

Apparently this "best of breed" firm needs the protection of a statute. Regardless of claims to the contrary it remains the case that competition spurs productivity, higher standards and efficiency. Fonterra simply doesn't face that competition. If it is as sharp as claimed it would survive and prosper in the face of competition.

Apply the same forces everyone else faces.

4. Company mistakes should not contaminate the NZ brand

Lumping "all things NZ" together and tying them to one company runs huge risks for brand NZ. NZ is not itself nor is it synonymous with Fonterra or agriculture or dairying. The mistakes and misfortunes of one company are not the mistakes of NZ and the brand should not be punished for those.

This is the fundamental flaw of the entire NZ Inc. concept. We are not a single incorporated society which rides on the fate of single companies, industries or sectors. Our economy is undiversified enough without making it worse.

It took many costly years for Americans to learn that "what is good for General Motors" is not in fact necessarily good for America.

Tragically we knew this but we granted statutory powers to the co operative that is Fonterra. That is not, demonstrably not, in the interests of NZ. If we don't want a repeat performance we need to adjust the policy settings accordingly.

What's to do? And Not do

1. Detach, once and for all, the NZ Govt from dairying. Remove statutory protection from Fonterra and in one fell swoop we create the potential for choice, competition, development of diversity in capacity and we decouple Fonterra's brand risk from NZ brand risk. It doesn't come much simpler.

2. Leave Fonterra's owners to discipline Fonterra's management. It is their job, their concern, their responsibility. It is not for the Government or the media or any other "interested party" outside the owners. Under competitive conditions this would happen with even greater steel and urgency.

3. Do not see the issue as being about "PR" or "the Chinese" or "managing reputation". It is not - it is about having the best institutional arrangements for all firms to prosper. Govt’s role is not protection of producer organisations and when it plays that role it risks several things – notably - the taxpayers' brand name.

4. Make certain that we do not have a repetition in the meat industry and elsewhere... please pay attention and keep paying attention.

Thursday, August 1, 2013

Classic analyst drivel

In typical fashion is is reported that:

“Analysts say the New Zealand dollar now appears overvalued, but there are few signs it is going any way but up for now.” (Radio NZ)

What on earth would this mean and what does it add to the net sum of human knowledge?

  • compared with what exactly is the NZD overvalued?
  • is it over valued for an importer?
  • what is its “correct” value?
  • Who exactly has got this wrong?
  • Is even one analyst short the NZD?

Even to have said “there is of course no way of knowing how far up the NZD will go or when it might reverse but in the meantime its rise favours importers but not always exporters” might have been at least closer to the truth.

But no – easier to succumb to the temptation of filling the news space with that which is easy to say, requires no thinking and is essentially cut and past from the last time one felt lazy of an afternoon.