Grant on Watercare

March 24th, 2013 at 12:00 pm by David Farrar

Damien Grant writes in the HoS:

Chorus has 1.8 million connections and 550 staff. It is privately owned, made $400 million profit in the past seven months and charges $300 for a new phone connection.

Watercare has 1.4 million connections with 645 staff.

It is owned by the Auckland Council and charges $8000 to connect a property to water.

Watercare claims the fee is an infrastructure growth charge.

It isn’t.

It is a tax imposed on developers because it is easier than running an efficient business.

$8,000 seems well over the top I have to say. Does anyone know what it is in other areas?

Grant on Manufacturing

February 10th, 2013 at 10:00 am by David Farrar

Damien Grant writes in the HoS:

David Shearer and his cohort of prospective coalition partners, the Greens, Mana and NZ First, are holding a show-trial into who killed the manufacturing industry.

Forty thousand manufacturing jobs have disappeared, Shearer declares.

What he does not say is those 40,000 jobs have gone since a peak right before the 2008 recession and almost half of that loss occurred in the final year of the last Labour government.

But if Shearer and his band of the grumpy and frumpy were to take the time to read the Department of Statistics September 2012 Economic Survey on Manufacturing, they would learn that total sales in the sector have been static.

Falling from a high of $24 billion in 2008, it is now sitting at $23 billion, measured in 2010 dollars.

The industry has become more productive; jobs have gone, but sales have not.

A good point.

Shearer is known to enjoy the surf, so he will understand it is best to ride the waves – not try to turn them back.

Manufacturing jobs that have gone are not coming back and there is nothing he, Graeme Wheeler or King Canute can do about it.

As well as his plan to build slums for the urban poor in areas where there will never be any employment – manufacturing or otherwise – he is granting a platform for the vested interests of the likes of the Manufacturers Association to cry about the exchange rate.

It is worth noting that the MEA represents relatively few manufacturers. Business NZ has a far higher proportion of manufacturers in their membership.

Manufacturing jobs have been killed because the economic tide has moved.

Shearer knows it, or should know it.

He may be king one day and if he is telling us he can control the tides of economic change, then he is going to look pretty silly on the beach after the next election.

Grant points out we also have fewer typists and lighthouse keepers than we used to!

Damien Grant on performance pay

April 22nd, 2012 at 11:43 am by David Farrar

Damien Grant writes in the HoS:

Parata is talking about performance pay for teachers and publishing league tables for schools based on National Standards. This is, as Sir Humphrey would say, courageous.

Teacher unions are opposed to both policies. To bolster their argument the NZEI recently brought Australian academic Professor Margaret Wu to our shores. Wu was quoted in the Otago Daily Times as saying that “we need to look at education more broadly than just students’ academic results”.

It is hard to imagine a more incredulously stupid comment. We pay teachers to teach – not to eat their lunch. We can and should assess success by comparing what the class knows at the end of the process from what they knew at the start. A competent principal will know which teachers are effective and which are not.

Not just the principal. As a pupil, we knew who were the good teachers. Not necessarily the popular ones, but definitely the good ones. It was common knowledge. Our chemistry teacher was teased mercilessly by students and parodied as a robot. But almost all his students knew he was a good teacher and they learnt chemistry.

A system that does not reward success encourages failure. Poor performers stay, talent leaves, children remain uneducated. Our education industry has become a sheltered workshop for useless teachers and a frustrating workplace for good educators.

The problem with the NZEI and the PPTA is that they are unions masquerading as education think-tanks. Unions exist to advance the cause of their members. This is honest work in a free society and teacher unions have been remarkably successful at shielding their members from any form of performance scrutiny. They are so good I suspect they have convinced even themselves that it is not possible to tell a good teacher from a bad one and that students learn by osmosis rather than by anything a teacher actually does or does not do.

The job of the education unions is not to improve the education system. Their job is to look after their members, specifically to keep them in jobs, get them pay rises, reduce their hours worked, and get them more funding. Now there is nothing wrong with that – so long as one realises their arguments are about self-interest, not about improving educational outcomes.

Measuring GDP

March 27th, 2012 at 12:00 pm by David Farrar

Damien Grant in the HoS, wrote about a recent paper by Reserve Bank Governor Allan Bollard on measuring GDP. I hunted down the paper, which is here. Basically it details the differences between how NZ and Australia measure GDP, and that if we measure GDP like Australia does, then the gap would be only 20%, not 30%. This is roughly what the purchasing power difference is.

This doesn’t mean we actually get any richer by changing how we measure GDP, but that how we place on the global league tables would be a fairer reflection.

Bollard states some key differences are:

  1. According to the report and a survey of country practices, of the 45 countries surveyed, New Zealand and Japan were the only countries that made no explicit estimates of unobserved activities (such as cash jobs, growing your own vegetables, illegal activities) in the estimation of GDP. Taking Australia as a benchmark, where explicit estimates are not made for illegal activity, but are made for the underground economy and household backyard production, we believe GDP in New Zealand could be underestimated by 2 percent.
  2. Most countries treat Financial Intermediation Services Indirectly Measured in a way that increases GDP by allocating the service to the sector that uses or consumes it. In New Zealand all financial services are assumed to be used by businesses in the production of other goods and services.We estimate the impact of this at approximately 2 percent of GDP.
  3. The lack of quality adjustment of residential buildings leads to an understatement of GDP. If we assume a similar growth path to Australia for New Zealand, we estimate the approximate ballpark for GDP could be 1.5 percent higher.
  4. Statistics NZ plan to introduce SNA 2008 in 2013-14. This is similar timing to other countries around the world. It is difficult to estimate the impact that new international standards will have on New Zealand’s national accounts and GDP. We estimate approximately a 3 percent increase in GDP.
  5. A country’s GDP can be estimated three ways, using the production method, the income method, or the expenditure method. In Australia, all three GDP measures are available on a quarterly basis, and instead of elevating one measure over another, the quarterly GDP movement is calculated by averaging the movements of the three measures.

Bollard concludes that our actual position on the OECD league table would jump us over Korea, Spain, Italy to around Japan’s place, if we measured GDP like Australia does. He argues that reducing measurement differences is important because:

  • Households may not make optimal decisions regarding employment, training, migration, saving and investment if they believe that our GDP per capita is significantly lower than it actually is, and that they might be better off elsewhere.
  • Financial markets need accurate measures of New Zealand’s ability to borrow and repay debt. This impacts our financial institutions and our sovereign borrowing. Measuring New Zealand’s GDP properly is a key concern of credit rating agencies.
  • We need well-focused informed economic and social policy. Clearly it is more difficult to know whether these are working if there are doubts about the level of GDP per capita, and whether our measure is truly comparable with that of other countries, including that of our large trans-Tasman neighbour.

And he concludes:

New Zealanders rightly worry about the extent to which New Zealand incomes have drifted below the world’s highest in the last 40 years, but how large is that drift, and how have the gaps changed in more recent times? For helping answer those questions, good and economically comparable data are vital. This paper does not answer the question “are we closing the trans-Tasman gap”? However it does argue that the gap is not as wide as most people think.

At the 2012 annual leader’s meeting, the Prime Ministers of Australia and New Zealand agreed that, to promote further reform and economic integration, the Productivity Commissions of each country would conduct a joint study on the options for further reforms that would enhance increased economic integration and improve economic outcomes. Given this aim, a useful contribution could be to improve harmonisation of statistical measurement in Australia and New Zealand, where appropriate, to improve data comparability.

I had no idea that the measurement differences between countries were so great that they could make a difference of 10% of GDP.

Damien Grant on the deficit

March 11th, 2012 at 12:00 pm by David Farrar

Damien Grant writes in the HoS:

The medical profession no longer drills holes into fevered skulls because science has demonstrated that such measures do not work, often kill the patient and leave a shocking mess in the surgery room.

When it comes to economics, however, there is no shortage of amateurs recycling discredited miracle cures: deficit spending and printing money.

Bryan Gould has been complaining that austerity does not work and is no solution to our current woes. He points to Greece, Spain, et al, to illustrate his point.

Greece, however, is a mess precisely because it has never practised austerity. Greek governments used to print drachmas, and lately borrowed euros. If borrowing money was a path to riches then Greece would be wealthy. It isn’t.

And he deals with the other fad:

If that sounds unpleasant, do not worry. Bryan Gould and Bernard Hickey have an idea – we can print the $13.6 billion. All we need to do is write ourselves cheques for $3000 each. Christchurch will be rebuilt, our butter will be cheaper and the Auckland man-drought will end as our talented lost-boys rush back.

Sadly, this will not work. Printing money to stimulate growth worked when citizens could be tricked that inflation meant economic conditions had improved.

Quantitative easing, a modern form of printing money, has been used overseas to help bolster the capital base of failing banks and prevent deflation in Japan. It does not create jobs.

There is no miracle cure. It is time we stopped listening to the snake oil salesmen.

We need to live within our means, not borrow more or start printing money.