sagenz

GDP may not be that bad

I posted on Friday that GDP data would be released today.  And the Monthly Economic Indicators - April 2006 - New Zealand Economy - The Treasury was released.  But no GDP data. We have to wait for next month for the actual GDP rate.  However they comment that things are looking better so New Zealand may avoid a recession.

April saw the release of data that was a little more upbeat compared to March. However, most indicators still point to a period of weak growth during 2006 as the lagged impacts of the previous high level of the exchange rate, past interest rate increases, as well as the more recent high petrol prices and falls in New Zealand’s terms of trade, all act to constrain growth.

There are some excellent benefit numbers.  Another strong reduction.  I wonder whether there is some transition to the real economy is going on now in work benefits are so high.  If you make more money being paid legally than in cash due to tax credits it would have the effect of reducing the grey workers.  As the number of beneficiaries gets smaller the bureaucracy has more time to work with the remaining people and getting cash work and receiving a benefit would be harder.

It would be difficult to determine exactly but I wonder what the impact is?

Is NZ in a recession

Mar Q GDP results will be out on Monday.  They are likely to indicate tha NZ has dropped into recession  Monthly Economic Indicators (MEI) - New Zealand Economy - The Treasury.  When you are looking for the answer this set of charts from Treasury is instructive.

After dropping sharply in the last years of National the state drag on the economy has steadily increased.

People have voted with their feet and been steadily leaving.

And Business Confidence could not get any worse.  Could it?

when mike moore asks about relevance it is worth listening

From Mike Moore, former PM, commenting in the Press. "New Zealand Labour is blessed with opposition conservative parties that never miss an opportunity to miss an opportunity by creating their own diversion of tiresome mini-scandals. They have real problems, not only of leadership, but purpose, even relevance."

He makes a very good point.  Part of the reason that Labour support is holding up is the basic voter appreciation that while all these mini scandals of Parker and benson Pope indicate a government with problems we have still had reasonable growth.  The hits need to be made in Health, Education, Productivity & GDP growth and tax.  Hot button issues.

Moore's piece is worth reading but the quote above is what we should all be paying attention to.  He is well to the right of helengrad and has worked in the real world for New Zealand interests.

Truth Outs! Labour has crushed New Zealand productivity growth.

The Productivity Statistics (1988–2005). show the true reality of the damage helengrad has done to the New Zealand Economy.  They inherited a steadily growing economy with excellent growth in productivity and they have broken it. Multifactor productivity has reduced from trend 2.7% to a mere 1.1%.  Their only success has been to increase the number of people in work. 

This will not be simply a short sharp recession as Cullen spins, it is a deterioration with long term consequences.  Labour have milked high commodity prices and increased worked hours for the growth in the Economy over the last 5 years.  The benefit of increased working hours can only increase growth once.  The next government will struggle to keep that high nominal level of employment.  International Commodity prices cannot be relied on to keep increasing exponentially.  Evidence shows they have tanked. 

The only way that the people of New Zealand can become wealthier in the long term is to work more productively. 

The following table shows the Compound Annual Growth Rates of various productivity factors.  Labour have had power since Nov 99, effectively March 2000 on being the closest year before they got organised to start breaking things. 

The first few years of National control in the early 90's were marked by measures taken to control serious fiscal problems inherited from the out of control last year of Labour.  Statistics NZ marks 1993 as a change.  The growth in productivity started then.  At issue is what Labour has done to the trend they inherited from National.  I have also shown the full 10 years of National for comparison.

So making the comparison of the last 5 years under Labour vs the previous 7 under National we see the damage done. Labour have achieved only 1.5% growth in Labour productivity and 1.1% in multifactor productivity.  National achieved an exceptional 3.1% growth in Labour productivity and 2.7% in multifactor productivity.

March year	Productivity indexes
	Labour	Capital	Multifactor
	Index
1988	786	1000	858
1990	863	928	886
2000	1136	1032	1094
2005	1224	1060	1155
2005 vs 2000	1.5%	0.5%	1.1%
2000 vs 1990	2.8%	1.1%	2.1%
2000 vs 1993	3.1%	2.0%	2.7%
2005 vs 1988	2.6%	0.3%	1.8%

These are damning statistics.  The current recession, The blown out current account deficit and the sabotage of Productivity growth.

All the spin on riding the Growth wave is just meaningless twaddle.

The detailed data presented by NZ statistics over such a long time frame offered a genuine opporutnity to measure this governments performance.  Measurement has got better.  I challenge all those bloggers and commentators supporting this government to justify this appalling set of statistics.

UPDATE: link fixed.

Getting somewhere:viable policy with a consensus

Rod Orams latest piece in Stuff  is worth a read.  He lays into the government but does not let National off the hook.  I agree with his angle.  Labour has no clue and National will win with soundly based policy for the long term.  Get the policies agreed over the next few years and get elected on the basis of an acceptance that Labour has fluffed their chance and National offers a genuine alternative.  Then GET THINGS DONE.

So we're stuck with a government running around in circles..

Much of its third-term workload consists of reviews, inquiries and overhauls of its existing policies, or long-promised but yet-to-be delivered action in important areas. Tackled well, those would be important changes. But they seem increasingly unlikely. On its current performance, the government lacks the cabinet drive to formulate significant new legislation, leadership to sell it to the public or parliamentary numbers to pass it.

After six years in office it is still hard to tell the Clark Government's purpose.

The NZ Herald editorial

After six years in office it is still hard to tell the Clark Government's purpose.  

The Prime Minister's statement to the House on Tuesday revived familiar aims, to improve the economy with investments in higher-value products and better productivity and enhance certain health, education and welfare benefits to selected sections of society.

But those are no more or less than would be expected of any Government at any time.

Even the Herald recognises that this government just does not have a clue. The ranks of left bloggers are clearly recognising it is impossible to defend the indefensible and are leaving the field.

We can look forward only to a couple more years of bumbling, stumbling incompetence before the rest of New Zealand realise what they saddled themselves with.

John Key says we need to reduce interest rates

Interested to see John Key also thinks the Resrve Bank should reduce interest rates. Herald - Curious act talks the kiwi down.

The National Party's finance spokesman, John Key, said the Reserve Bank was "whistling in the wind if they think they are going to convince Japanese retail investors not to continue to buy uridashi issues". If the bank wanted to reduce the appetite for these bonds it needed to cut interest rates, he said.

NZ should drop Interest Rates sharply

The conventional wisdom holds that Allan Bollard and the Reserve Bank should raise interest rates to try and deter borrowing. Just Left: Plumbing the Depths has a few comments showing he sticks with conventional wisdom.

Thus the high interest rates and the high dollar. What could have been done to prevent this? With hindsight, maybe an earlier monetary policy response.

He is supported to various degrees by Economic commentators all over the country.  The conventional response is to raise the price (interest rates) to reduce demand for mortgages.  In my opinion this is the wrong approach. 

The reason that raising interest rates will do nothing to reduce borrowing is that the extra cost of interest on the mortgage is more than offset by the roaring asset price inflation in housing.  If a $500,000 house 80% financed at 7% increases in value by 10% per year the annual capital value increase is $50,000.  If interest rates are raised by 5% that is still only $20,000 extra.  So the "foolish consumer" is still making an extra $30,000 per year.  And because most rates are fixed the residential borrower may not incur that cost until a few years into the future.

How many times has anybody tried to drop the price to foriegn lenders? If the reserve bank dropped the interest rate right back to American Federal reserve or even Japanese levels there would be an effect.  A very low interest rate would reduce the easy supply of money to NZ customers from Japanese savers.

The vast bulk of money coming into this country is being invested in real estate.  Very little is invested in business because the cost of that money is too high.

If Alan Bollard had the guts to drop the base rate to 2% you would find all that foriegn money would stop flowing to NZ and would find a lower exchange risk higher interest rate home.  Next the NZ banks would have no more money to lend.  Credit for refinancing and new mortgages would dry up.  Loan to value ratios and credit scoring would both be used heavily to better allocate the supply of money. 

The inevitable would happen and NZ exchange rate would drop significantly.  This would bring actual foriegn investment & exports as the price of NZ assets got cheaper relative to the rest of the world.  The virtuous circle would rule as imports would get more expensive.  The economy would grow strongly as exports and investment generated more jobs.  Any growth in wages would be demand lead as the labour market reflected the current low unemployment.  This would actually benefit the economy.

But conventional wisdom will rule and all the politicians and bankers and economists will wring their hands and say what can be done about those silly people spending all their capital increase in their homes.  We have to raise interest rates.  FLAT WRONG!!!

So somebody tell me the flaw in my logic. 

Lower taxes increase National wealth - The legacy of Reagan

National Center for Policy Analysis.

Twenty-five years ago today, Ronald Reagan was inaugurated as the 40th President of the United States promising less intrusive government, lower tax rates and victory over communism. If the story of history is one long and arduous march toward freedom, this was a momentous day well worth commemorating, says the Wall Street Journal. All the more so because over this 25-year period prosperity has been the rule, not the exception, for America -- in stark contrast to the stagflationary 1970s.

• Perhaps the greatest tribute to the success of Reaganomics is that, over the course of the past 276 months, the U.S. economy has been in recession for only 15.
• That is to say, 94 percent of the time the U.S. economy has been creating jobs (43 million in all) and wealth ($30 trillion).
• More wealth has been created in the United States in the last quarter-century than in the previous 200 years.

What more needs to be said.  How far has New Zealand gone in the last 25 years.

The Story of Wheat

A fascinating report from the Christmas edition of The economist.  Well worth a read. 

The story of wheat | Ears of plenty | Economist.com.

IN 10,000 years, the earth's population has doubled ten times, from less than 10m to more than six billion now and ten billion soon. Most of the calories that made that increase possible have come from three plants: maize, rice and wheat. The oldest, most widespread and until recently biggest of the three crops is wheat (see chart). To a first approximation wheat is the staple food of mankind, and its history is that of humanity.