Economic Literacy
The Visible Hand in Economics gives a neat lesson in economic literacy on the issue of productivity growth.
Paul Walker also joins in, dismissing the argument that merely increasing productivity doesn’t necessairly boost GDP or wages, and they quote Paul Krugman of all people:
Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages. In the 1950s, when European productivity was typically less than half of U.S. productivity, so were European wages; today average compensation measured in dollars is about the same. As Japan climbed the productivity ladder over the past 30 years, its wages also rose, from 10% to 110% of the U.S. level. South Korea’s wages have also risen dramatically over time. (“Does Third World growth hurt First World Prosperity?” Harvard Business Review 72 n4, July-August 1994: 113-21.)
Both major parties in Australia understand the importance of productivity growth. That is why they support the Australian Productivity Commission.
The challenge for John Key is to have policies that will help productivity growth.
November 18th, 2008 at 8:09 pm
Productivity NZ style is pretty simple. Send your kids to Aussie and invest your savings in infrastructure there to support them.
JC
November 18th, 2008 at 9:04 pm
Productivity is simple. Put rubber on the road. Fuck everything else.
Hard, measurable differences achieved within specific timeframes by defined industries has to be and is the only acceptable bottom line.
Embarking on ethereal ambitions such as “regulatory reform” is all way past time and just super-neaty, but the question is: what specific difference will it make, by when and in what industry(s). Those targets need to be set and progress monitored. (Douglas would be extremely good at this.)
What worries me is not the governance of productivity improvement but the implementation, where it hits the road. Productivity is operations, period. It is NOT finance, law, HR, marketing or any of the other myriad sectors you see in a corporate.
I don’t see a whole lot of ops mgrs in the cabinet, nor in the bureacracy. The thing about ops people is that they’re very good at what they do BUT you have to LISTEN to THEM about what works and what doesn’t and then most importantly, REMOVE the obstacles and IMPLEMENT the suggestions. FFS don’t just write reports.
If you use the Aussie PC as a model I predict you’ll get a lot of reports but not much rubber. We don’t need that, frankly we can’t afford to waste the time or the money if that’s all that we’re aiming for. They screwed up GST, remember. Anyone that can do that as well as they have isn’t really worth listening to.
P.S. This is something that NZer’s with their No.8 wire mentality should be bloody good at if anyone is. Don’t screw it up guys.
November 18th, 2008 at 10:54 pm
DPF said…
The challenge for John Key is to have policies that will help productivity growth.
Easy.
First, kill the RMA.
Second, the government should get out of the way (ie, less legislations), so that producers and business owners can get on with the job of producing. Producers know how to produce compared to those of bureaucrats and politicians.
November 18th, 2008 at 11:01 pm
Reidrubber, not doubt
“Those targets need to be set and progress monitored. (Douglas would be extremely good at this.)”
Indeed he would.
Gratitude being the least-felt human emotion, it’s become fashionable to revile Roger, for reasons which the revilers are never able to explain.
Yet National have just signed up to ACT’s goal for New Zealand of closing the $500-a-week income gap with Australia.
If they really want to do that, they will have to adopt many of the points on Roger Douglas’s 20 Point Plan – and by my calculation they’ve already more or less signed up to 10 of those points:
http://johnansell.wordpress.com/2008/11/18/act-vertebrae-visible/#comments
November 18th, 2008 at 11:46 pm
“it’s become fashionable to revile Roger, for reasons which the revilers are never able to explain”
Quite right John. I quizzed a guy on the Eastbourne ferry recently who always votes National but felt he could never go to ACT. He couldn’t come up with a single reason.
It’s a curious phenomena a bit like the anti-nuclear sentiment. Totally irrational yet very wide-spread and transcending normal political boundaries.
Personally I find Sir Roger’s offer of return to service at his time of life, the mark of a true patriot. I fervently hope but don’t yet expect that those who determine his placement will find the best possible use for his many and varied talents.
Sir Roger, for your selfless decision to return, your courage in continuing to do what was right despite the growing opposition and most of all, for the vital and necessary changes you made to the nation, thank you. I look forward to your appointment and will be following your new career with great interest. Whatever it is, I know it will be successful.
November 19th, 2008 at 1:20 am
I’m having lunch with him tomorrow (oops, I mean today!), and will pass on your comments, reid.
It’s all about tone, we’re told, and the mere mention of Roger’s name is supposed to freeze four million hearts.
But Roger’s about substance, not style. He won’t care if he’s as welcome as leprosy – as long as he can help to lift productivity and incomes, and bring Kiwi kids home.
Having his SMART goal set in concrete by a National government is not a bad first week’s achievement for a guy who’s supposed to be to the right of Genghis Khan and too dangerous to entrust with a ministerial warrant.
With Rodney and Roger on his case, John Key won’t be able to quietly drop this closing-the-gaps goal the way Clark abandoned her equally ambitious ‘top half of the OECD’ target when it soon became obvious that her policies were driving us down the wealth ladder, not up.
Sorry, that link before should have been:
http://johnansell.wordpress.com/2008/11/18/act-vertebrae-visible
November 19th, 2008 at 8:34 am
Perhaps the biggest job is ’saving’ NZs banking system. I’m unconvinced that we have seen the worst yet. In fact, I would not be surprised to see a bank go under.
November 19th, 2008 at 8:55 am
“Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages.”
That’s rubbish – productivity in NZ has increased by roughly 30% in the last 16 years, yet the real average wage for the 25% of the paid employees, that work in the secondary labour market (hospitality, retail etc) is the same.
http://bp1.blogger.com/_t8KNMT03MmI/SIaccCQtcoI/AAAAAAAAAD4/dqFNJsKsEEU/s1600-h/Wages.jpg
This is due to the fact that we no longer have a keynsian economy – domestic demand doesn’t drive domestic production any more, so thus the disconnect between productivity and wages.
Also, many employers are trans-national, meaning that profits for their domestic enterprises can be repatriated overseas, along with consequential productivity and wage rises.
What the National Party and DPF are trying to convince us of here, is that if we treat the very rich nicely by cutting the top tax rate back to 30% (at the expense of social services for everyone else), then that will be passed on back to workers through increased investment, productivity, and therefore wages. But as I’ve shown, this failed “trickle down theory” of the 1980s and 1990s just doesn’t stand up to rational analysis.
November 19th, 2008 at 9:16 am
I think rogernome the idea is to lift the skill levels locally so kiwis can earn the big dollars internationally and bring them home. Then those evil rich foreigners won’t be able to be so nasty to us poor simple kiwis anymore.
November 19th, 2008 at 9:21 am
“it’s become fashionable to revile Roger, for reasons which the revilers are never able to explain”
Then let me explain: Because we can read economic statistics and thus we know that Douglas screwed up badly when finance minister.
You say he’d help with productivity. Funny, because capital productivity collapsed when Douglas was finance minister:
http://www.stats.govt.nz/products-and-services/hot-off-the-press/productivity-statistics/productivity-statistics-1978-2007-hotp.htm
The only thing that grew under his watch was Labour productivity – which grew at the typical trend rate, which is odd because it should grow faster than the trend rate in times of high unemployment (because of who’s most likely to keep their jobs).
Feel free to look up the stats on our govt deficit, and see a similar story (Muldoon was bad in that regard, but Douglas was far worse with his “starve the beast” approach), likewise the time that the wage difference between OZ and NZ blew out was when Douglas was finance minister.
Read the stats, dude.
November 19th, 2008 at 9:21 am
By the way rogernome I’m not convinced that a real lift in productivity growth will flow through in an egalitarian manner to all kiwis either but I don’t care. Kiwis don’t share the workload in an egalitarian manner.
November 19th, 2008 at 9:21 am
roger nome said “That’s rubbish – productivity in NZ has increased by roughly 30% in the last 16 years, yet the real average wage for the 25% of the paid employees, that work in the secondary labour market (hospitality, retail etc) is the same.”
I think Paul Krugman saw that one coming when he wrote “Some economic writers try to refute this proposition by pointing to particular industries in which relative wages don’t match relative productivity. For example, shirtmakers in Bangladesh, who are almost half as productive as shirtmakers in the United States, receive far less than half the U.S. wage rate. But as we’ll see when we turn to a multigood model, that is exactly what standard economic theory predicts.”
November 19th, 2008 at 9:23 am
nome nome nome – where to start
1) unskilled labour gets paid what ever the immigrants brought into the country are prepared to work for – go talk to Hulun about the Labour immigration policy.
2) Yep, some employers in NZ are multinationals although that ahs fallen under Labour. Multinationals flee NZ due to its penal tax regime
3) Please quote facts not link to some half arse web site
4) By letting high personal tax payers keep and spend more moeny you’ll get more service jobs being supported.
5) The domestic economy has been driven by excessive reliance on non productive government expenditure
6) Please dont use the word “thus” to try and make yourself look smart.
November 19th, 2008 at 9:26 am
icehawk – and now that John Key is in charge we’re in recession. Damn. Bring back the socialist spendup’s please. It’ll be ok then.
November 19th, 2008 at 9:27 am
Paul – those industries cover 25% of the workforce. Now you may view them as inconsequential but i don’t. If the economy isn’t improving the lives of the people, there’s something wrong with it (unless you think it’s just there for the well-off).
November 19th, 2008 at 9:29 am
icehawk – lets not dwell on the past debacle that has been NZ under the last 30 years of socialism lead by labour and national governments with the exception of Langes labour who broke the cycle.
Lets look forwards, its a far more productive option.
November 19th, 2008 at 9:37 am
Expat –
(1) Low-skilled labour (there’s no such thing as unskilled Labour), gets what ever the statutory minimums declare historically actually. I agree that Labour didn’t do enough to support low-skilled labour though.
(2) According to the World Bank New Zealand is the second easiest country in the OECD to do business.
(3) The analysis is my own. You can fact check it by following the links to official statistics that i cite:
http://rogernome.blogspot.com/2008/07/national-prepares-to-make-war-on-poor.html
(4) The rich tend to save a higher proportion of their income, spend it on overseas travel and flashy overseas-produced luxury items. The analysis shows that a tax-cut for low to middle income workers is more economically stimulating than a tax cut for the wealthy.
(5) Govt spending is the same % of GDP as it was in 1999, and John Key has promised to retain nearly all of current spending (whether he keeps his promise or not is yet to be seen).
November 19th, 2008 at 9:43 am
oh and …
(6) “Thus” is a bit geeky, but i used it mainly through force of habit (i.e. i do lots of academic writing).
November 19th, 2008 at 9:44 am
So roger nome your argument seems to be that real wages have increased for 75% of the workforce but stayed the same for 25% of the workforce and therefore people are worse off?
November 19th, 2008 at 9:47 am
KiwiGreg – don’t be deliberately dense – where have you read that real wages have increased commensurately with productivity for 75% of NZ workers?
November 19th, 2008 at 9:54 am
Hmmm – comment seems to have hit the moderation trap so i’ll try it again..
Expat –
(1) Low-skilled labour – there’s no such thing as unskilled Labour – gets what ever the statutory minimums declare historically actually. I agree that Labour didn’t do enough to support low-skilled labour though.
(2) According to the World Bank New Zealand is the second easiest country in the OECD to do business.
(3) The analysis is my own. You can fact check it by following the links to official statistics that i cite:
http://rogernome.blogspot.com/2008/07/national-prepares-to-make-war-on-poor.html
(4) The rich tend to save a higher proportion of their income, spend it on overseas travel and flashy overseas-produced luxury items. The analysis shows that a tax-cut for low to middle income workers is more economically stimulating than a tax cut for the wealthy.
(5) Govt spending is the same % of GDP as it was in 1999, and John Key has promised to retain nearly all of current spending. Whether he keeps his promise or not is yet to be seen.
November 19th, 2008 at 10:07 am
Hmmm – comment seems to have hit the moderation trap so i’ll try it again..
Expat –
(1) Low-skilled labour – there’s no such thing as unskilled Labour – gets what ever the statutory minimums declare historically actually. I agree that Labour didn’t do enough to support low-skilled labour though.
(2) According to the World Bank New Zealand is the second easiest country in the OECD to do business.
(3) The analysis is my own. You can fact check it by following the links to official statistics that i cite.
(4) The rich tend to save a higher proportion of their income, spend it on overseas travel and flashy overseas-produced luxury items. The analysis shows that a tax-cut for low to middle income workers is more economically stimulating than a tax cut for the wealthy.
(5) Govt spending is the same % of GDP as it was in 1999, and John Key has promised to retain nearly all of current spending. Whether he keeps his promise or not is yet to be seen.
November 19th, 2008 at 10:07 am
I don’t believe that was my argument and I would be surprised if they had given the huge impact on the relative returns of labour and capital caused by the entry of China’s (and to a lesser extent India’s) workforce into the global economy.
November 19th, 2008 at 10:13 am
KiwiGreg – still being deliberately dense I see – i stated that real wages haven’t increased for at least 25% of paid positions (the labour force is employed plus unemployed, so your terminology is wrong), not the real wages have increased commensurately with productivity for 75% of workers. .
November 19th, 2008 at 10:13 am
So roger nome, what would you have done differently or not done at all in the 80s?
And which of those ‘failed policies of the past’ that were nonetheless kept by the Clark government would you have reversed?
It took time for those reforms to flow through, but do you deny they produced a more prosperous country?
November 19th, 2008 at 10:26 am
John Ansell: The Employment Contracts Act, by weakening the the bargaining position of the worker, meant a stagnant real median personal income from 1991 to 1999. All the while profits soared.
http://4.bp.blogspot.com/_t8KNMT03MmI/SJkfmHfMTVI/AAAAAAAAAEk/j3OOq4M4XNQ/s1600-h/Profits+and+GDP.jpg
Now the 4th Labour government’s Labour Relations Act was a sensible middle ground. It allowed employers to opt out of arbitration (meaning lower wage growth) whilst retaining statutory minimum standards for vulnerable workers through the Awards system. Wage growth was excessive from 1981 to 1987, and drove inflation too high, but by 1991 it had come down to a sustainable level. We didn’t need the ECA.
November 19th, 2008 at 10:27 am
John Ansell: The Employment Contracts Act, by weakening the the bargaining position of the worker, meant a stagnant real median personal income from 1991 to 1999. All the while profits soared.
Now the 4th Labour government’s Labour Relations Act was a sensible middle ground. It allowed employers to opt out of arbitration (meaning lower wage growth) whilst retaining statutory minimum standards for vulnerable workers through the Awards system. Wage growth was excessive from 1981 to 1987, and drove inflation too high, but by 1990 it had come down to a sustainable level. We didn’t need the ECA.
P.S. you can find all this information on my blog.
November 19th, 2008 at 10:32 am
yea we need to get into more of that wage/price spiral roger! that will set us right!
lets get the unions some more power too!
at the moment its just not fair!
these “business owners” that risk everything to start a company, work harder than everyone else, have untold stress etc expect to be rewarded more than the guy that brings nothing to the table! its just not on!
November 19th, 2008 at 10:34 am
dime – so now it’s your turn to be disingenuous and deliberately dense? I acknowledge that wage restraint is necessary, and that the 4th Labour Government achieved this. Learn to read ffs.
November 19th, 2008 at 10:37 am
im trying roger.. but i find it difficult to keep up with your “academic” style.
November 19th, 2008 at 10:40 am
icehawk
there are lies, bloody lies and statistics, and you want us to look at what?
November 19th, 2008 at 10:46 am
quick question roger.. you say the “rich” are good savers and the money wont trickle down through investment…
do you think the rich just put their money in the bank? you dont think they invest in shares, commercial property etc etc?
as for the 25% of the workforce not making enough money for your liking – who gives a fuck? is there not an opportunity for them to upskill??? i know plenty of people who left school early to work in shite jobs.. realising their mistake they have gone on to upskill and are now doing well.
November 19th, 2008 at 10:48 am
“meant a stagnant real median personal income from 1991 to 1999. All the while profits soared.”
Why is it that whenever you guys on the Left start talking about the economy, you assume that the starting position was the most correct and that movement away from that is always bad. You dont even consider for a minute that MAYBE the soaring profits and stagnating wages were redressing a previous imbalance.
In order to win the historical argument against the ECA you first have to prove that the situation before it was good. Not good just for workers, or even good for business owners, you need to prove it was good for New Zealand.
The reforms of the 1980’s, and later the ECA, redressed an imbalance in the New Zealand economy. Increased profits encouraged more investment. Not only that, the new environment promoted entrepreneurship and an impression that the government wasnt hostile to risk takers.
That is something the last Labour government pissed all over. As a result, investment in NZ dropped away, the NZX was as stagnant as any mid-90’s median wage, and we are now in a worse position to deal with adverse global economic conditions.
November 19th, 2008 at 10:57 am
If we’re going to wander into the world of ECA and ERA, then let us do it with proper diligence.
While I agree that there was need to enshrine some rights for workers in the national control system, we have achieved a point where there are no rights for employers, a situation that needs remedy.
A practical example!
An an employer I hire a university graduate straight from completing their degree. I pay them in the top decile of their peers, and provide significant opportunity for development through experience. In their second year, with a pay rise that maintains the top decile position, the same employee asks for an investment of $8,000 in course fees and attendance costs to participate in an international conference that is relevant to their area of work, and I agree. Immediately after the conference, the employee puts forward a two year personal development plan that requires an investment of $15,000 and will “bring to the company some global best practice that will increase the company’s economic position; I agree to the investment. In year three, after $12,000 of the $15,000 has been spent, the employee is earning, pre-bonus, ion the TOP PERCENTILE of their peers, and I have invested $20,000 over and above an excellent salary package in them and they submit their resignation with 2 weeks notice! They are moving to an employer that is offering $5,000 per year more in salary and benefits, and where they have a faster potential of promotion to an executive position. I have invested in the attractiveness of the employee to another employer, and that employer is going to reap the benefit of my investment. Can I get a return – no way, it is the employee’s right to leave as, when and for whatever reason they like. I, on the other hand, do not have ‘equal opportunity’ to un-hire poor performers or retain people I have invested in.
There orta be a law guv!
November 19th, 2008 at 11:11 am
You do realise Disraeli was joking when he said that?
November 19th, 2008 at 11:29 am
dave strings, you are not alone with this scenario. Nome will not understand as he is still in the development phase and yet to unleash his intelect on to the world stage with a proper job. So not only have you paid the $20,000.00 mentioned above, you are still contributing to Nome’s personal development.
November 19th, 2008 at 12:22 pm
roger nome. You are missing the point, deliberately I have no doubt. But the point that Krugman was making was that on average as productivity has increased so have wages. Or do you really think that people in Japan today are not, on average, better off than people in Japan at the end of WW2? Do you really think that wages in Europe and South Korea haven’t increased since the end of WW2? Note what Krugman wrote,”Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages. In the 1950s, when European productivity was typically less than half of U.S. productivity, so were European wages; today average compensation measured in dollars is about the same. As Japan climbed the productivity ladder over the past 30 years, its wages also rose, from 10% to 110% of the U.S. level. South Korea’s wages have also risen dramatically over time.” This does not mean that there is not variation in the data but that on average we find this to be true. Think of it as a trend around which the data lies. You say “those industries cover 25% of the workforce” which means they don’t cover 75% of the workforce. And this does not counter the point that Krugman made. Yours is just an example of “particular industries”. What you would have to show is that on average for an entire economy wages have not risen as productivity has risen since that is the point Krugman was making.
November 19th, 2008 at 2:34 pm
Paul – sorry but that’s not the way it works any more in the global free market. Under keynsianism wage growth followed productivity, but i’ve already explained to you where the disconnect is occurring now.
for empirical evidence see the following link:
http://news.bbc.co.uk/2/hi/business/5303590.stm#graph
November 19th, 2008 at 2:51 pm
Economic theory is that Labour working hard wont increase productivity.
Productivity increases come from raising the ratio of Capital (ie machinery) to Labour.
This ratio will only change if the cost of capital (ie interest) decreases in relation to the cost of labour.
(a crude example is if 5 farm workers cost the same as one tractor and a worker, but can produce more, the tractor wont be bought. If the cost of farm workers go up or tractors go down it is worth getting each worker a tractor rather than 20 more workers and the productivity per worker increases 5 times)
The idea that we need to keep wages low to compete with China is wrong, we need more productive capital per worker to compete.
The Dairy industry is a good example. There was a Dairy Factory in each town with its 20 workers. Now there is 5-10 highly automated factories producing far more with 20 workers
In the 80’s NZ sufferred from very high inflation and correspondingly high interest rates. One of the ideas behind the RBA was by lowering inflation, interest rates would fall. This would result in more capital being used and an increase in productivity and an increase in income per person. Japan is a fine example of this, low interest rate increases the capital employed which raises the productivity per person which raises their income.
Why this hasn’t happened in NZ is what need to be explored.
Some areas to look at are:
How the interest rate is used to control the housing market which where a lot of our ‘capital’ ends up.
Why business pay a much higher interest rate on their borrowings (cwf housing)?
Would increasing wages & salaries actually increase productivity by causing capital to increase (or would the Reserve Bank just bang up interest rates)? Singapore tried this and it worked but there was a lot of pain for the low cost industries as they disappeared
November 19th, 2008 at 4:05 pm
I read in a Wall Street Journal Article recently that 70% of productivity gains are captured by the workforce in wage increases.
November 19th, 2008 at 4:08 pm
# wreck1080 (184) Vote: Add rating 1 Subtract rating 0 Says:
November 19th, 2008 at 8:34 am
“Perhaps the biggest job is ’saving’ NZs banking system. I’m unconvinced that we have seen the worst yet. In fact, I would not be surprised to see a bank go under.”
We are lucky our banks are all owned overseas, wreck, or I am sure they would have gone under just like our finance sector has. As for Kiwibank you can bet the bill to the taxpayer is ramping up as we speak.
November 19th, 2008 at 4:20 pm
roger nome (4008) 0 15 Says:
November 19th, 2008 at 8:55 am
“Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages.”
“That’s rubbish – productivity in NZ has increased by roughly 30% in the last 16 years, yet the real average wage for the 25% of the paid employees, that work in the secondary labour market (hospitality, retail etc) is the same.”
Roger nome, that comment is NOT rubbish, it refers to the overall.
YOU are isolating out those sectors of the workforce whose productivity is NOT increased by the accumulation of capital.
Other have addressed the point admirably above, but I would like to add that to help those sectors that are left behind in the era of advancing productivity and technology and demand for skills and knowledge and ability, we must not slaughter the goose that lays the golden eggs, roger; which is what you would do in your obsession with inequality. Presumably you would prefer everyone to stay at Bangladeshi levels rather than advance to American levels, with inequality.
As long as you do NOT agree with my long held conviction that the lowest income earners should not have to pay tax at all, you are a bleedin hypocrite. Note that approx. the bottom 40% – get that – FORTY PERCENT – of American earners, PAY NO TAX. THAT is what you can do when you have lots of seriously wealthy people paying MOST of the tax. The infamous Bush “tax cuts for the rich” actually resulted in substantial INCREASES in the share of tax revenue paid by the top 1%; the top 5%, the top 30%, and so on.
Come over from the dark side, roger, ability like yours is wasted on the Left.
November 19th, 2008 at 4:40 pm
“Paul – sorry but that’s not the way it works any more in the global free market.”
Actually no. For a start your graph only covers 6 years, hardly long-term productivity growth. Also over such a short time period the signal can get lost in the noise so you wouldn’t expect to see much. The measure of productivity isn’t TFP, is it output per worker employed, a measure of labour productivity. Also they claim more of the productivity growth have gone into profits. Profits are income for people as well, either today or if reinvested tomorrow. To see the productivity/wage effect most clearly look at places like India and China over the next 20 years or so. Incomes will rise in both. Also do you really think that people in Japan today are not, on average, better off than people in Japan at the end of WW2? Do you really think that wages in Europe and South Korea haven’t increased since the end of WW2?
November 19th, 2008 at 4:41 pm
BlueDevil:
“………Why this hasn’t happened in NZ is what need to be explored.
Some areas to look at are:
How the interest rate is used to control the housing market which where a lot of our ‘capital’ ends up……”
Thank you, BlueDevil. Go to the top of the class. THAT in a nutshell, is our problem. We have had an increase in money supply, courtesy of Japanese investors, and all it has done is pump up the price of houses while investment in productivity-improving capital stagnated. This happened on Mikhael Kullen’s watch, by the way, we can’t blame Wall Street or anyone else for this.
You wait till the Japanese investors want their money out of NZ again. It would be bad enough even if this money HAD been used for productivity increases, but seeing it has all been blown on housing price inflation, we are STUFFED.
We SHOULD have had:
1) Lower company tax. (Note that company tax is a tax on growth. Profits distributed as income are taxed at that point anyway. To tax profits BEFORE they are distributed as income is a “spite” tax, pure and simple; and what’s more, it is a “cut your nose off to spite your face” tax, it is a shoot yourself in the foot tax.)
2) A freed-up supply of land so that demand for housing flowed into construction of houses, not inflated prices of a constricted number of existing stock houses. We could have still had a building sector providing jobs and training and paying taxes – we could have kept a few of the builders who have shot the gap to Aussie.
There are a few more things we should have had, but these are the crucial ones. And I don’t just mean the tax rates and land restrictions were a little bit wrong, the distortions of investment were ENORMOUS. We still need to do these things, but it will take a long, long, time for the distortions we have already accumulated to iron out of the system.
If we get a total crash meanwhile, the situation is out of our hands, we will get a dry recovery program all right, courtesy of the IMF, and Roger Douglas in 2008 would have been a kinder alternative (not to mention Don Brash in 2005 – what “might have been”).
November 19th, 2008 at 5:21 pm
AS a general rule it is easier to “stop the bad” rather than “to promote the good”.
This is particularly relevant when we are sliding from recession into depression.
That is why I favour a Panel or whatever which goes through our rules and regulations and identifies the obstacles to private investment in NZ rather than sit around talking about how to make things better.
For example, development contributions (which fine people for building things) must go.
Any threats to property rights and security for loans must go – e.g the ET Scheme.
Slack attitudes to property rights such as allowing greens to trespass and destroy property and not arrest them because they are acting in a good cause really discourage investment in private property and innovation in plant genetics etc.
Making natural heritage a matter of national importance under the RMA but saying nothing about the need to be able to access building aggregates etc. The result is that soon we shall be importing sand.
And so on.
Right now we need an anti obstacle commission rather than a productivity commission – although that can have its day when we once again in a growth economy.
November 19th, 2008 at 7:28 pm
roger nome: “Paul – sorry but that’s not the way it works any more in the global free market.”
The second part of a reply.
Did Wages Reflect Growth in Productivity? by Martin Feldstein
(Professor of Economics, Harvard University, and President and CEO of the National Bureau of Economic Research. [He has since retired from his NBER position] This paper was prepared for presentation at the annual meeting of the American Economic Association on January 5, 2008.)
Feldstein opens his article by saying
“The level of productivity doubled in the U.S. nonfarm business sector between 1970 and 2006. Wages, or more accurately total compensation per hour, increased at approximately the same annual rate during that period if nominal compensation is adjusted for inflation in the same way as the nominal output measure that is used to calculate productivity. More specifically, the doubling of productivity represented a 1.9 percent annual rate of increase. Real compensation per hour rose at 1.7 percent per year when nominal compensation is deflated using the same nonfarm business sector output price index.
In the period since 2000, productivity rose much more rapidly (2.9 percent a year) and compensation per hour rose nearly as fast (2.5 percent a year).”
Later he says
“If wages rise at the same pace as productivity, labor’s share of national income remains essentially unchanged. This paper presents specific evidence that this has happened: the share of national income going to employees is at approximately the same level now as it was in 1970.”