I'm a great believer in 'economics by walking around', just as the management theorists are fond of 'management by walking around'. Particularly when I was the BNZ's chief economist, and got out to enormous numbers of meetings and groups, I quickly realised that I was learning far more about the economy, from the people who turned up at those speeches or meetings, than I was passing on to them in my prepared speech. They told me things that weren't showing up in any of the published statistics or surveys. And everybody won: the feedback I got improved my take on what was going on, and my next prepared speech would be more on the button for the next audience.
All of which is by way of introducing one new bit of anecdotal economics by walking around: what's happening to the Auckland housing market.
I run, most days, plantar fasciitis permitting, and as I puff my way round the North Shore neighbourhoods, it's become very obvious that many existing family homes are being bowled over and being replaced by new infill development. One day, there's an old-fashioned family home on the quarter acre section, next day it's gone, the day after that, the builders are in putting up two or three townhouses. The latest one is right beside us. Yesterday, and literally around the corner from us (we're on Clematis Avenue, the house was on Sunrise Road), the big machinery came and took away the existing house, and any minute the construction crew will arrive.
There's good news and - maybe not for today or tomorrow, but in due course - potentially bad news here.
The good news is that the market's working. Housing demand in Auckland exceeds supply, prices are high and rising, and supply is responding: two (maybe three) households will get accommodated where one was before, albeit with the loss of the garden.
The potentially bad news is that this sort of supply response is the sort of response you get in the later stages of a house price cycle. I remember, when we first moved to Auckland in early 1995, this sort of thing was all the rage, too. We had friends, and this was all they did: bowl, or improve, existing houses. And I remember going to look at one renovated house: there were four twenty-somethings involved (I gave up on who was with whom, or why) whose modus operandi was to buy a wreck, live in it while they expanded it, flick it, and move on to the next dump.
So that's the market today. At this stage, and I know this is seat of the pants stuff, I wouldn't (and maybe this is where I might be parting company with the Reserve Bank a bit) say that the price rises are in any sense hugely out of whack. For now, in Auckland, there's genuinely strong demand and genuinely limited supply, so what would you expect?
There's a whole side debate to be had about the role of arguably too-loose monetary policy exacerbating the demand side, but even if mortgage rates were appreciably higher, I reckon there'd still be something of a supply/demand imbalance that would justify a strong market. And if he hasn't already, Reserve Bank Governor Wheeler could usefully get on the phone to ex-Governor Don Brash, who faced the same problem of trying to differentiate a region-specific house price boom from a potentially more alarming generalised blowout in asset prices.
So we know where we are: we're well into a bull market. I'll be keeping an eye on it as I run past, but for now, that's all that's underway: I wouldn't say we're at or near the top of the cycle. There's certainly a lot of this speculative in-fill redevelopment going on, but it seems to me, for now, that there is a good opportunity cost basis for it. In this tight market, the tired or small 1950s home on the big section badly needs to be put to its most productive use.
There's the odd straw in the wind that's suggestive of things getting a bit over-enthusiastic: as I mentioned in a previous post, the real estate agents are frenetic, and yet again, this morning, we had a letter imploring us to put our house on the market. At a guess, though, I'd still say that this is a strong market, rather than a fevered one.
Thursday, 30 May 2013
A thought experiment about charter schools and competition
Charter schools are, obviously, in the news. The latest development is an open letter sent to all MPs arguing against them, and saying, among other things, that they haven't worked overseas.
In future posts I'll come back to the points raised in the letter, and talk about some empirical, real world evidence. But let's just suppose for a moment you knew nothing at all about the practical outcomes of charter schools overseas. Let's go back to first principles for a minute.
Who would you expect to benefit from greater choice in education? Or indeed from greater choice across a wide variety of public services - charter schools are only one example of a strong and growing trend in the developed world towards offering greater choice in areas such as education and health. Self-evidently, you'd expect the people who would benefit most are those who have least choice now.
And who would they be, I wonder?
It's not the well-off: they can, and do, pay for private schooling and private health.
It's not the moderately well-off: they can, and do, change the health or education zones they live in. They aim to buy a house in a good school zone: you'll have seen for yourself that the estate agents signs regularly advertise 'In zone' for a well-regarded local school. And there's nothing unusual in that, by the way - it's internationally well-documented that one of the main effects of zoning-style school allocation is that house prices rise in the better locations.
The main beneficiaries of choice, in short, can only be those who currently have little or no choice at all. And in New Zealand conditions (and in many other countries), that means poorer people in poorer areas.
And it's not like you can escape the poor areas without money. Bright kids in poor areas can't, in general, get scholarships to good private schools elsewhere: that was one of the first things the incoming Labour government of 1999, unforgivably, banged on the head. So poor kids, bright or less bright, are trapped. The only choice they have, at the moment, is the school they're in zone for. It might be an awful sinkhole school, but that's all that is on the menu.
So: a charter school arrives. And your current local school is dire.
Take a wild punt on the outcome: your current dire school, plus the chance (not the certainty) of a better school, versus your current option, the dire school.
How likely is it that you will be worse off?
In future posts I'll come back to the points raised in the letter, and talk about some empirical, real world evidence. But let's just suppose for a moment you knew nothing at all about the practical outcomes of charter schools overseas. Let's go back to first principles for a minute.
Who would you expect to benefit from greater choice in education? Or indeed from greater choice across a wide variety of public services - charter schools are only one example of a strong and growing trend in the developed world towards offering greater choice in areas such as education and health. Self-evidently, you'd expect the people who would benefit most are those who have least choice now.
And who would they be, I wonder?
It's not the well-off: they can, and do, pay for private schooling and private health.
It's not the moderately well-off: they can, and do, change the health or education zones they live in. They aim to buy a house in a good school zone: you'll have seen for yourself that the estate agents signs regularly advertise 'In zone' for a well-regarded local school. And there's nothing unusual in that, by the way - it's internationally well-documented that one of the main effects of zoning-style school allocation is that house prices rise in the better locations.
The main beneficiaries of choice, in short, can only be those who currently have little or no choice at all. And in New Zealand conditions (and in many other countries), that means poorer people in poorer areas.
And it's not like you can escape the poor areas without money. Bright kids in poor areas can't, in general, get scholarships to good private schools elsewhere: that was one of the first things the incoming Labour government of 1999, unforgivably, banged on the head. So poor kids, bright or less bright, are trapped. The only choice they have, at the moment, is the school they're in zone for. It might be an awful sinkhole school, but that's all that is on the menu.
So: a charter school arrives. And your current local school is dire.
Take a wild punt on the outcome: your current dire school, plus the chance (not the certainty) of a better school, versus your current option, the dire school.
How likely is it that you will be worse off?
Is bad news the only news?
Last night I watched the BBC World News, on Sky. And it had a major hooha about sharp falls in the Japanese stock market. The big news, apparently, was that the Nikkei had had a substantial fall - they talked about 5%, though the index data at the close weren't to hand, and in the event it was a less newsworthy but still largish fall of 3.4% (opened at 14,072.9, closed at 13,589.03) - and the programme went on to note that, having hit a five week low, the Nikkei's weakness was causing alarm and unrest in the rest of the Asian markets. No doubt the other news channels were running similar items.
Talk about something that is literally true, yet unbalanced.
Six months ago (its closing level on November 30 '12) the Nikkei was at 9,446.01. Since then, and even after this latest 'dramatic' fall, it is up by 43.9%. If this is a weak market, please, Oliver-like, could I have more.
Was there equivalent coverage when the market was rising? Were the TV channels as diligently reporting large gains as they have been in reporting large losses? For example, in the space of six days, 2nd to 8th of April)the Nikkei went from 12,003 to 13,193, a gain just shy of 10%. Were last night's handwringers celebrating back then? Cue for a Tui style: yeah, right. Investors becoming massively better off is, apparently, not news.
Irrespective of thoughts about media posturing, what's really going on?
The Japanese market had run hard and run strong. It had some good reasons for it. The new Abe government decided that it wanted substantially more spending on infrastructure, very low interest rates for even longer, and a much lower exchange rate (the whole 'Abenomics' thing). This big reflationary impetus greatly improved the short-term prospects for Japanese GNP growth and for Japanese corporate profits. A big rise in the equity market was entirely consistent with this new set of policy settings.
Did the equity market overdo things? I'd say, very likely. The Japanese share market is not the most transparent or above board of the world's equity markets, and a semi-organised over-ramp of share prices wouldn't have surprised me in the least. And even in less - let's call it collegial - markets, asset prices are well known to have tendencies to overshoot the levels that the fundamentals might justify. In some sectors of the Japanese market (and most notably the property and property development companies) share prices had, to use a technical economic term, gone mad.
The real news, in short, is that an extraordinarily strong equity market had got a bit irrationally exuberant, and needed to be a bit more realistic.
Was that too hard for the media to say?
Talk about something that is literally true, yet unbalanced.
Six months ago (its closing level on November 30 '12) the Nikkei was at 9,446.01. Since then, and even after this latest 'dramatic' fall, it is up by 43.9%. If this is a weak market, please, Oliver-like, could I have more.
Was there equivalent coverage when the market was rising? Were the TV channels as diligently reporting large gains as they have been in reporting large losses? For example, in the space of six days, 2nd to 8th of April)the Nikkei went from 12,003 to 13,193, a gain just shy of 10%. Were last night's handwringers celebrating back then? Cue for a Tui style: yeah, right. Investors becoming massively better off is, apparently, not news.
Irrespective of thoughts about media posturing, what's really going on?
The Japanese market had run hard and run strong. It had some good reasons for it. The new Abe government decided that it wanted substantially more spending on infrastructure, very low interest rates for even longer, and a much lower exchange rate (the whole 'Abenomics' thing). This big reflationary impetus greatly improved the short-term prospects for Japanese GNP growth and for Japanese corporate profits. A big rise in the equity market was entirely consistent with this new set of policy settings.
Did the equity market overdo things? I'd say, very likely. The Japanese share market is not the most transparent or above board of the world's equity markets, and a semi-organised over-ramp of share prices wouldn't have surprised me in the least. And even in less - let's call it collegial - markets, asset prices are well known to have tendencies to overshoot the levels that the fundamentals might justify. In some sectors of the Japanese market (and most notably the property and property development companies) share prices had, to use a technical economic term, gone mad.
The real news, in short, is that an extraordinarily strong equity market had got a bit irrationally exuberant, and needed to be a bit more realistic.
Was that too hard for the media to say?
Tuesday, 28 May 2013
France and the ratings agencies
Three articles in the online May 27 issue of La Tribune won't bring much joy to people worried about the Eurozone's economic outlook and its ongoing potential for disruption of global financial markets.
The High Council for the Public Finances - maybe there's a more elegant translation of the Haut Conseil des Finances Publiques, but you get the drift - has trolled through the revised 2012 national accounts published by INSEE, the French statistical agency, and has established that the nominal fiscal deficit was 4.8% of GDP (worse than the previously thought 4.5%), and that the underlying structural deficit was 3.8% (up from the previously estimated 3.5%). The good news was that the 2012 figures were better than 2011's: the bad news (and this is my view, not the Council's) is that the improvement took place under previous management (Sarkozy's).
And we heard from both major ratings agencies.
S&P is expecting a poor economic outlook (-0.2% fall in GDP this year, +0.6% growth in 2014), fiscal deficits of 3.8% of GDP this year and 3.3% in '14, and says it remains to be seen if debt will stabilise in 2105 (the government's projections are debt/GDP of 93.6% in '13, 94.3% in '14, and 93% in '15). It also says would threaten France's credit rating, and its own assessment will depend on how France deals with its main reform challenges, and it mentions rigidities in the labour market and the services sectors.
Moody's has the same hymn sheet: GDP down this year (-0.4%), weak recovery in '14 (+0.5%), and a question mark over structural reform. It gives credit for some recent labour market reforms, but notes that we haven't yet seen what their impact has been, and it says its negative outlook on France's credit rating reflects its "worry on the loss of competitiveness of the country, on its fragmented labour market, and its budgetary situation".
The High Council for the Public Finances - maybe there's a more elegant translation of the Haut Conseil des Finances Publiques, but you get the drift - has trolled through the revised 2012 national accounts published by INSEE, the French statistical agency, and has established that the nominal fiscal deficit was 4.8% of GDP (worse than the previously thought 4.5%), and that the underlying structural deficit was 3.8% (up from the previously estimated 3.5%). The good news was that the 2012 figures were better than 2011's: the bad news (and this is my view, not the Council's) is that the improvement took place under previous management (Sarkozy's).
And we heard from both major ratings agencies.
S&P is expecting a poor economic outlook (-0.2% fall in GDP this year, +0.6% growth in 2014), fiscal deficits of 3.8% of GDP this year and 3.3% in '14, and says it remains to be seen if debt will stabilise in 2105 (the government's projections are debt/GDP of 93.6% in '13, 94.3% in '14, and 93% in '15). It also says would threaten France's credit rating, and its own assessment will depend on how France deals with its main reform challenges, and it mentions rigidities in the labour market and the services sectors.
Moody's has the same hymn sheet: GDP down this year (-0.4%), weak recovery in '14 (+0.5%), and a question mark over structural reform. It gives credit for some recent labour market reforms, but notes that we haven't yet seen what their impact has been, and it says its negative outlook on France's credit rating reflects its "worry on the loss of competitiveness of the country, on its fragmented labour market, and its budgetary situation".
Monday, 27 May 2013
World famous in The Guardian
There I was, browsing through the online Guardian (May 26 edition), and I came across an excerpt from a new book by celebrity restaurant and food critic Jay Rayner - you'll have seen him, if you're a foodie like me, in various programmes on Sky's Food Channel. And there, under the headline 'Why worrying about food miles is missing the point', was a reference to a 2006 paper written by Prof Caroline Saunders of Lincoln University and two colleagues, Greg Taylor, also from Lincoln, and Andrew Barber, from The AgriBusiness Group.
The gist of the article was that Rayner had until recently been an uncritical supporter of the 'food miles' idea, which is that it is supposedly better for the planet if you buy locally, saving all the fuel and emissions that transporting your food from the other side of the world would have involved.
The flaw in the notion, if you haven't figured it out for yourself already, is that the impact on the planet depends on the total carbon footprint involved in getting the food to you. Producing low yields in unfavourable conditions (where you might need heated glasshouses, for example) requires more total energy than producing high yields in favourable conditions, even after transport costs (usually only a very small fraction of the total cost in any event) are factored in. And Caroline and her mates did the heavy lifting to show that the likes of New Zealand's lamb and apples are easier on the planet than the local UK ones.
Rayner, to his credit, was admitting to an evidence-based change of heart, starting with reading the New Zealand paper and progressing to other research, which he also cites. If you'd prefer to go to the New Zealand source for yourself, it's here.
It reminded me, too, of something I've often wondered about. On the same total footprint basis, I wonder if electric cars are really as good for the planet as they claim?
The gist of the article was that Rayner had until recently been an uncritical supporter of the 'food miles' idea, which is that it is supposedly better for the planet if you buy locally, saving all the fuel and emissions that transporting your food from the other side of the world would have involved.
The flaw in the notion, if you haven't figured it out for yourself already, is that the impact on the planet depends on the total carbon footprint involved in getting the food to you. Producing low yields in unfavourable conditions (where you might need heated glasshouses, for example) requires more total energy than producing high yields in favourable conditions, even after transport costs (usually only a very small fraction of the total cost in any event) are factored in. And Caroline and her mates did the heavy lifting to show that the likes of New Zealand's lamb and apples are easier on the planet than the local UK ones.
Rayner, to his credit, was admitting to an evidence-based change of heart, starting with reading the New Zealand paper and progressing to other research, which he also cites. If you'd prefer to go to the New Zealand source for yourself, it's here.
It reminded me, too, of something I've often wondered about. On the same total footprint basis, I wonder if electric cars are really as good for the planet as they claim?
Saturday, 25 May 2013
Measuring the degree of competition
It got surprisingly little media or analyst coverage, but last Tuesday (21st) the Electricity Authority released the results of the latest surveys it has conducted of the perceived levels of competition in various branches of retailing. They were particularly interested in electricity retailing, naturally, but they also included a wide range of other major retailing sectors - the banks, electrical goods stores, online book stores, petrol stations, the supermarkets, and the telcos.
People were asked, "Using a 0-10 scale where 0 means not at all competitive, 5 means just adequate and 10 means extremely competitive, how competitive are the following businesses in terms of working to get your business and offering you the best deals? If you do not know enough, just say so".
The graph below summarises consumers' responses, and compares them to a similar 2011 survey the Authority had also carried out (and which, I regret to say, flew below my radar at the time).
Granted, these are perceptions rather than any underlying reality: retailers, if observed selling the same thing at the same price, could in principle be in near-perfect competition, or they could be in close collusion, and a consumer wouldn't necessarily know which. On the other hand, people aren't mugs, and can often be trusted to figure out the nature of the options they're shown. So I'd be surprised if these perceptions were wildly off the mark of the reality.
One bit of good news is that, over the past two years, perceived levels of competition have risen across all the retail sectors surveyed. Hopefully, that's the structural reality, and not something cyclical - the ANZ-Roy Morgan Consumer Confidence Survey has risen strongly over the same period, and maybe households are just feeling more upbeat about everything - because increased competition generally contributes to both productivity and innovation. The UK's Office of Fair Trading published a very good paper in 2007 showing the various ways in which this happens, if you're interested in more.
People were asked, "Using a 0-10 scale where 0 means not at all competitive, 5 means just adequate and 10 means extremely competitive, how competitive are the following businesses in terms of working to get your business and offering you the best deals? If you do not know enough, just say so".
The graph below summarises consumers' responses, and compares them to a similar 2011 survey the Authority had also carried out (and which, I regret to say, flew below my radar at the time).
Granted, these are perceptions rather than any underlying reality: retailers, if observed selling the same thing at the same price, could in principle be in near-perfect competition, or they could be in close collusion, and a consumer wouldn't necessarily know which. On the other hand, people aren't mugs, and can often be trusted to figure out the nature of the options they're shown. So I'd be surprised if these perceptions were wildly off the mark of the reality.
One bit of good news is that, over the past two years, perceived levels of competition have risen across all the retail sectors surveyed. Hopefully, that's the structural reality, and not something cyclical - the ANZ-Roy Morgan Consumer Confidence Survey has risen strongly over the same period, and maybe households are just feeling more upbeat about everything - because increased competition generally contributes to both productivity and innovation. The UK's Office of Fair Trading published a very good paper in 2007 showing the various ways in which this happens, if you're interested in more.
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| Competition - consumers' views |
One oddity in the graph above, however, is the low perceived competitiveness of online bookstores: my pre-survey guess would have been that they would have featured very favourably. Amazon, and the online operations of Barnes & Noble and of Sydney's excellent Abbey's bookstore, certainly make a good deal of effort to get my custom. That's where the Electricity Authority's simultaneous survey of 81 'stakeholders' is rather helpful. It was mostly major players in the electricity industry (generators, distributors, retailers), but also had energy users and energy consumer representatives, plus some investors, educational institutions, and professional bodies.
Their, arguably more informed, assessment, is shown in the graph below. And it fixes the anomaly: the online booksellers move from bottom (in the consumer survey) to middle of the pack (in the stakeholder survey). Otherwise the assessment is pretty much the same as the consumer one - which rather leads you to believe that both surveys may be picking up the same underlying reality - except that the stakeholders rate electrical goods stores more competitive than supermarkets, which is plausible, too. I certainly feel I've got more choice when it comes to PCs than when it comes to groceries.
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| Competition - stakeholders' views |
There was also an interesting table in the consumer survey, reproduced below, showing the level of 'Don't knows' for each of the retailing sectors.
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| Distribution of consumers' answers |
By and large, consumers feel they know whether they're being offered a more or less competitive landscape. As I say, they could be wrong, and they might be getting smoke blown in their eyes by a simulacrum of competition - marketing ballyhoo in one small part of a market, for example, disguising lethargic competition in the bulk of it - but on its face it's quite an encouraging result.
It helps to explain the online booksellers, too. That's the only retail sector in this survey where there were very high numbers of people who were unsure about the level of competition. It seems odd to me - I would have thought the word had got out about the Amazons and Book Depositories of this world - but evidently not. My guess would be that next time this survey is done, the 'Unsures' will have dropped quite a bit, and the online operations will come out in a more favourable light.
Wednesday, 22 May 2013
The perks of office
For six weeks in 1987 (as I mentioned in the previous post) I got seconded to the Leader of the Opposition's office as an economic adviser. I did it mostly for the intrinsic interest of it, and partly because I'd done a stint as an adviser to a rather controversial Irish government minister, and had learnt a few things that I thought I could put to good use.
All well and good. What I wasn't prepared for was that I was now - not a VIP exactly, but more a Somewhat Important Person - in Parliamentary Services' grand scheme of things. And that meant that, at 7.15am each morning, a chauffeured car arrived outside our house in Pauatahanui, to carry me away in style to help to attend to the great matters of state. Sadly, it all stopped on election day (August 15). As, of course, it should.
If you're a fan of Yes, Minister, you might ask, were the New Zealand Parliamentary Services drivers as much in the know as their counterparts were in Jim Hacker's UK? You might very well think so, but I could not possibly comment.
All well and good. What I wasn't prepared for was that I was now - not a VIP exactly, but more a Somewhat Important Person - in Parliamentary Services' grand scheme of things. And that meant that, at 7.15am each morning, a chauffeured car arrived outside our house in Pauatahanui, to carry me away in style to help to attend to the great matters of state. Sadly, it all stopped on election day (August 15). As, of course, it should.
If you're a fan of Yes, Minister, you might ask, were the New Zealand Parliamentary Services drivers as much in the know as their counterparts were in Jim Hacker's UK? You might very well think so, but I could not possibly comment.
The political economy of opposition
I've been thinking about the Labour/Green proposals to introduce a monopoly purchaser of electricity, as a mooted way of driving electricity prices down.I have to assume their proposals were well-intentioned and sincere, but equally there was a lot of media comment (and business pushback) suggesting that the policy was an opportunistic spoiler of the Mighty River share float.
It reminded me of an episode that occurred back in 1987, when I got seconded by the BNZ to be Jim Bolger's economic adviser. Apparently, the tradition was - and I have to say it's a nice one, and I hope it's still respected - that someone in Treasury got deputed to help out the office of the Leader of the Opposition once a general election got underway, so as to even up the odds a bit. Trouble was, the reform-minded Treasury of the time had a low opinion of National, assuming that National was still in the grips of Muldoon's dirigisme, and I don't blame them. I'd have felt the same way in their shoes, too.
In short, nobody in Treasury could be persuaded to go along. So the call went out: is there an economist in the public sector that could be persuaded to give it a go? The flying fickle finger of fate pointed towards the BNZ (then still government owned). The top brass at the BNZ dithered for a while but eventually, said, okay, partly because I'd done this kind of job before in Ireland.
A big issue for National back then was how to respond to one of Labour's set piece policies - GST (which had been introduced the previous year). The National team went into reflexive oppositional mode: GST is a work of the devil, we won't have it, we'll do something completely different. For tragic policy wonks who might want to know, the alternative National came up with at the time was called the X-tax ('X' being 'expenditure'), which as I remember it was a sales tax on spending in the shops. And as an adviser, you banged your head against the politics of those days. The alternative policy might be poor, or inferior to the government's policy, but any talk along those lines got trumped by what seemed to be the political axiom of those times: we have to be seen to oppose. Opposing rallies our supporters, and attracts defectors from the other camp.
Except if you are creating credibility problems for yourself later on. National lost in a landslide, and post-election the supposedly superior policy of an X-tax was quietly buried, never to be exhumed again. Exactly the same process, by the way, played out in Australia, where Labor portrayed John Howard's introduction of GST in 2000 as a terrible idea, only to leave it in place when they got in.
How, as an opposition, do you establish your credibility as a potentially competent manager of the economy, when you are faced with the modern-day equivalent of a big new policy like GST?
From what I observed in 1987, the wrecking-ball, or the reflex "we'll do the opposite", risks coming across as political posturing in the voters' eyes, and not seen as primarily concerned about what's best for the economy.
There are alternative ways. Say that the government policy goes too far? Sure. Too late, too little? No problem. We'll open the books and look at the problem when we get in? That can work. It's just what we'd have done if we were in power? Not the path often followed, but can sometimes be true, gets traction with the electorate for candour, and doesn't leave you in the awkward position of having to backtrack on what you once said, as and when you end up in the Beehive.
There will, of course, be occasions where an opposition will genuinely have good reasons to junk an incumbent policy - we saw this play out in industrial relations legislation in particular, where successively we had the Employment Contracts Act (National), then the Employment Relations Act (Labour), then amendments to the ERA (National again) - and the electorate will agree with them, and that's obviously fine.
That said, economic credibility for an opposition is an extremely valuable asset, hard to accumulate and easy to dissipate (much the same is true of central banks). Look at the UK: it took the UK Labour Party 18 years (1979-'97) to rebuild itself as a plausible economic manager, after the chaos of the "winter of discontent" (1978-79) of James Callaghan's administration. And then it took the Conservatives 13 years (1997-2010) in the wilderness before they were again seen as credible, after the assorted problems of John Major's government (including getting forcibly driven out of the European Monetary System in 1992). Hoarding your credibility is still playing out there, too: polls show that the voters, despite the swingeing austerity policies of the Conservative/LibDem coalition, rate the incumbents as better economic managers than Labour.
It reminded me of an episode that occurred back in 1987, when I got seconded by the BNZ to be Jim Bolger's economic adviser. Apparently, the tradition was - and I have to say it's a nice one, and I hope it's still respected - that someone in Treasury got deputed to help out the office of the Leader of the Opposition once a general election got underway, so as to even up the odds a bit. Trouble was, the reform-minded Treasury of the time had a low opinion of National, assuming that National was still in the grips of Muldoon's dirigisme, and I don't blame them. I'd have felt the same way in their shoes, too.
In short, nobody in Treasury could be persuaded to go along. So the call went out: is there an economist in the public sector that could be persuaded to give it a go? The flying fickle finger of fate pointed towards the BNZ (then still government owned). The top brass at the BNZ dithered for a while but eventually, said, okay, partly because I'd done this kind of job before in Ireland.
A big issue for National back then was how to respond to one of Labour's set piece policies - GST (which had been introduced the previous year). The National team went into reflexive oppositional mode: GST is a work of the devil, we won't have it, we'll do something completely different. For tragic policy wonks who might want to know, the alternative National came up with at the time was called the X-tax ('X' being 'expenditure'), which as I remember it was a sales tax on spending in the shops. And as an adviser, you banged your head against the politics of those days. The alternative policy might be poor, or inferior to the government's policy, but any talk along those lines got trumped by what seemed to be the political axiom of those times: we have to be seen to oppose. Opposing rallies our supporters, and attracts defectors from the other camp.
Except if you are creating credibility problems for yourself later on. National lost in a landslide, and post-election the supposedly superior policy of an X-tax was quietly buried, never to be exhumed again. Exactly the same process, by the way, played out in Australia, where Labor portrayed John Howard's introduction of GST in 2000 as a terrible idea, only to leave it in place when they got in.
How, as an opposition, do you establish your credibility as a potentially competent manager of the economy, when you are faced with the modern-day equivalent of a big new policy like GST?
From what I observed in 1987, the wrecking-ball, or the reflex "we'll do the opposite", risks coming across as political posturing in the voters' eyes, and not seen as primarily concerned about what's best for the economy.
There are alternative ways. Say that the government policy goes too far? Sure. Too late, too little? No problem. We'll open the books and look at the problem when we get in? That can work. It's just what we'd have done if we were in power? Not the path often followed, but can sometimes be true, gets traction with the electorate for candour, and doesn't leave you in the awkward position of having to backtrack on what you once said, as and when you end up in the Beehive.
There will, of course, be occasions where an opposition will genuinely have good reasons to junk an incumbent policy - we saw this play out in industrial relations legislation in particular, where successively we had the Employment Contracts Act (National), then the Employment Relations Act (Labour), then amendments to the ERA (National again) - and the electorate will agree with them, and that's obviously fine.
That said, economic credibility for an opposition is an extremely valuable asset, hard to accumulate and easy to dissipate (much the same is true of central banks). Look at the UK: it took the UK Labour Party 18 years (1979-'97) to rebuild itself as a plausible economic manager, after the chaos of the "winter of discontent" (1978-79) of James Callaghan's administration. And then it took the Conservatives 13 years (1997-2010) in the wilderness before they were again seen as credible, after the assorted problems of John Major's government (including getting forcibly driven out of the European Monetary System in 1992). Hoarding your credibility is still playing out there, too: polls show that the voters, despite the swingeing austerity policies of the Conservative/LibDem coalition, rate the incumbents as better economic managers than Labour.
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