09/10/2012 Comments Off on Greens solving the wrong problem
Apologies for the very light posting lately. Real life is impinging on my virtual world, and shows no sign of relenting.
As you’ll know, the Greens have suggested that the RBNZ should just print money to get us out of our economic doldrums, and the PM responded that they were ‘wacky‘. The econoblogosphere has already taken them to task, first TVHE and then Offsetting Behaviour.
Those bloggers have covered the topic. I just wanted to add one thing. It looks like the Greens are trying to import the US solution to a problem we don’t have. In the US, quantitative easing (printing money) is supposed to be good for a few reasons:
- debt overhang — people overspent/overinvested in housing, and now the houses aren’t worth what they paid for them. Households are carrying heavy mortgages but can’t sell to get out from underneath them. Inflation may help bring wages and house values back into line, although this does depend on the mortgage rates staying below inflation
- safe haven — the idea is that a general glut of currently produced goods (a lack of aggregate demand) can be considered an excess demand for future goods. More precisely, it is an excess demand for financial instruments to protect spending power into the future. With really low interest rates, cash and bonds are nearly equivalent. Increasing the supply of cash increases the supply of instruments to protect future consumption
- sticky wages — wages are easier to increase than decrease; it is very difficult to give an employee a nominal wage cut. Obviously, there are ways that wages are flexible downward: reducing the number of hours for waged workers is one key way. But, those are nominal wages. Wages don’t need to keep up with inflation, and higher inflation gives more room for real declines in wages. This, in turn, allows for greater adjustment either between tradable and non-tradable sectors, or across industries as a result of differential productivity changes.
These aren’t New Zealand’s problems. The QV website has a graph that shows property prices are back to pre-recession levels [no perma-link]. We don’t have the debt overhang and trapped mortgagees that you see in the US. There doesn’t seem to be a shortage of safe havens, either.The 90-day rate, bond rates, and so on are all positive enough. Some US rates have been negative, which means that savers are willing to pay to keep their money safe for the future. Wage stickiness shouldn’t be a factor, either. Inflation has been a bit up and down and is low at the moment, but is high enough to produce real wage declines.
Normally, I’m all for importing solutions from elsewhere. Let’s just make sure they address our problems.
10/11/2011 Comments Off on Narratives of minor parties
I’ve looked at National and Labour and the stories they tell about how the economy works. What about the minor parties?
Greens: I was struck by how technocratic they are. They take the economy as a given, and then make suggestions for how to push or pull it in the ‘right’ way. It is a partial equilibrium view, admittedly — the feedbacks and general equilibrium effects are missing. They also try to broaden the discussion: we shouldn’t look just at the market outcomes, but at the wider economic effects. To do this, we should measure the ‘right’ things. The focus on measurement signals acceptance. They aren’t trying to say that the market system failed; it isn’t a systemic critique. Instead, they are saying, ‘Look, when we measure and aim for growth, we get it. Now, let’s do the same for the things that really matter: the environment, society, families, etc.’ This is economics as the operating system for humanity.
Act: It is hard to separate Act 2011 from Hide, Brash, and classical liberalism generally. I won’t really try. Brash was on Close Up on Monday, and repeated the Taskforce 2025 prescription that NZ needs world-leading regulation. That brought to mind, ‘That government is best which governs least’. This is the reasoning behind Hide’s Regulatory Standards Bill. The underlying narrative reminds me of Rousseau: man starts in a state of nature, and then is corrupted. The economy starts off in a state of natural function, and then is corrupted by government.
Maori: Much of the party policy focuses, not surprisingly, on the tangata whenua. The party talks about how outcomes are different for Maori. A lot of the discussion is supply-side: producing more young people with education and training, making better use of the resource base, understanding Maori IP. The demand side is less visible: what skills will be demanded, or why demand for Maori-owned resources aren’t as high. The implication is that the economy works, it just doesn’t work well for Maori. They need to get in there and participate.
A different narrative, one that isn’t used, is that the market produces winners and losers. The poor and dispossessed are as integral to the system as the wealthy. Such as system is unjust, and must be replaced. Instead, the Maori party seems to say that the economy generally works, but Maori need better participation.
I may be reading this wrong, but all three of these parties seem to believe that the economy generally works well. It may need some refocusing (Greens) or relaxing of controls (Act), or we may want a bigger piece of it (Maori), but its centrality and functioning are taken as given. These narratives parallel the political fortunes. They can’t change the essential nature of the Government. Instead, they can alter its trajectory a bit towards their own goals.