Matt is providing free briefings for the blogging community on the international and domestic economic situation. It’s a great opportunity to learn a bit more about what is happening. Matt will cover:

• An overview of what’s going on in Europe, what we need to keep an eye out for, and how it will impact on New Zealand generally,
• A discussion of “rebalancing” in New Zealand,
• What’s going on with food prices and what it means for us,
• The growing problems in the labour market,
• A social “minimum income”.

There’s also a general Q+A at the end. There are presentations in Auckland and Wellington. Details are:

Auckland – Friday December 2, 3pm

Meet at MORE FM reception on Level 2, 239 Ponsonby Rd.

Wellington – Saturday December 10, 12pm

 Meet outside 109 Featherston St.

I hope to make the Wellington one. Should be very useful and informative.

People see this and then they say “global warming isn’t real” or “we are too small to impact on global warming” and then they say “NO ETS!”.  However, this isn’t the point of the ETS.

The ETS is a scheme to raise the funds to pay for our Kyoto Liability.  Even if you don’t believe in global warming, we have a liability that is based on carbon emissions.  As a nation, either people who produce the carbon pay for it – or everyone pays for it through higher taxes.

So here in lies the question – do we want higher prices for carbon goods or lower incomes because of higher taxes?  Given that the liability is a function of the amount of carbon we produce, it follows that pricing carbon on the basis of this will lead to the “best” solution – no matter what political party you support.  I know that National, Labour, and the Greens all understand this – so if you guys could like, explain it to the ACT party, and then like, explain it to the public, I’ll be very happy

Let the howls of outrage begin.

In a report the is often used to justify ACE spending, the net benefit of adult community education (for 409,000) was stated to be between $4.8bn and $6.3bn annually – giving a total return of $54-$72 per $1 invested (see page 48).  Wow, really – if I could get that sort of return I would be investing in adult community education for sure.

A 50:1 to 70:1 return on every dollar spent is of course beyond implausible. I am surprised PWC allowed their name to be associated with such a nonsense report.

Bill English was quoted as saying that on the basis of the report “we would spend $10 billion on adult and community education and would have an economy that is twice the size it currently is”

Nolan looks at how they have mixed up public and private benefits:

Now the factors that are policy relevant are NOT private benefits – these help determine the market price.  They are benefits that stem from some third party, uninvolved in the transaction, gaining some benefit from the individual taking an adult community course.  And they are not “fiscal externalities” (ht Offsetting Behaviour).  So the policy relevant factors are:

• Increase in direct income:  No
• Savings in government benefits:  No
• Marginal increase in individual income:  No
• Increase in income from self-confidence:  No
• Reduction in family violence:  No
• Savings for health:  No
• Savings from crime reduction:  Potentially, partially
• Increased community involvement by individual:  No
• Higher income taxes:  No

So eight of the nine benefits are private, not public. The one public benefit is a possible reduced crime rate. But PWC have assumed that anyone doing an ACE course instantly has a 50% less chance of committing a crime. Yep – attending one Moroccan cooking course, and you are 50% less crime likely.

Dave Guerin at the very good Education Directions blog looks at the future of ACE:

The ACE market will be reshaped, rather than destroyed, because there is so much demand for such education. In 2008 there were 140,000 ACE students (EFTS unavailable)  in schools and 78,000 ACE students (4,000 EFTS) in TEIs (MOE). Enrolment numbers have been boosted by significant government subsidies and by the availability at schools of physical and business infrastructure to run community education programmes, but people still want this type of education. The subsidies are now largely gone and many schools have dropped their programmes, but there are new opportunities.

In the absence of nationwide coverage by subsidised school providers, I expect that private ACE co-ordinators will spring up. They won’t get the same administrative  support from schools, but equally they won’t be bound by the collective employment agreement or be treated as an add-on to the school’s main business. There are still plenty of empty school rooms at night to rent at low cost too. Prior to schools getting so involved in community education, there was a thriving private market in ACE-type courses and I would expect many of the previous school-based tutors to explore new models. There are bound to be several viable models out there for ACE delivery.

If ACE does produce such huge private benefits as 50:1, there will indeed remain great demand for ACE courses – even if one has to pay say $50 for it.

Eric Cramption looks into where the nonsense about a 50% reduction in crime rate comes from, if you do an ACE course. He finds:

So folks taking adult ed courses are assumed to have a 50% reduction in their chances of committing a crime. PWC cites a 1999 working paper as evidence; a 2004 AER piece by the same author has the crime reduction associated with high school graduation as being less than half that figure (14-26%). This latter study uses a far more cautious identification strategy: changes in minimum age of dropping out of school as instrument for completion rates. And note that the numbers cited are for HIGH SCHOOL GRADUATION, not for taking a night course in Indian cooking.

Remind me to never get PWC to do a report, if I want it taken credibly.

Thank God for the Internet where we can get some solid analysis of these ever growing number of crappy reports, justifying whatever the commissioning party has asked for.

Monetary policy at heart isn’t about “unemployment” or “output” or “the exchange rate” (which is a relative price).  Monetary policy is about money, it is about the supply of money, it is about the price level and inflation.  The “interest rate” is merely an instrument central banks use to control the money supply and keep “inflation stable”.  By keeping inflation stable we increase certainty and we help make sure that money remains a good indicator of the relative value of REAL goods and services.

The idea that we should mess around with this to tinker with other things misses the point – if our exchange rate is funny, unemployment is high, or output is below potential we have to ask “what issues in REAL economy are causing this”.  Monetary policy in itself is irrelevant – monetary policy IS about money, it IS about inflation, it IS about expectations regarding these nominal variables, it IS NOT about real economic variables.

I am not saying that monetary policy hasn’t moved real variables – but in a world where monetary policy IS solely focused on inflation and consistent expectations is a world where monetary policies impact on the real economy is at its best.

It worries me greatly that Labour have abandoned support for a bipartisan monetary policy consensus.

Labour goals were:

1. a stable and competitive exchange rate;
2. reduced interest rates for businesses and home owners;
3. continued priorities of price stability and low inflation;
4. to guard against expectations of price rises.

So, with goal 1 they want to reduce the flexibility of NZ$ prices, which will lead to higher unemployment and a worse allocation of resources.  Furthermore, they want to keep the dollar low which implies subsidising exporters to the cost of households in the short-term.

With 2 they want to punish savers.

And with 3 and 4 they want to contradict themselves – as by limiting price flexibility and holding the exchange rate and interest rates down they WILL drive an increase in inflation expectations, dump price stability, and remove any chance of a low inflation environment.

Benefits

1. Lower transaction costs.  As Aussie is our main trading partner this is a biggie.
2. Removes exchange rate risk for trade between nations, both in terms of relative prices and account reporting.
3. Prevents damage from exchange rate verring from fundamental level.
4. Makes trade protectionism more difficult.
5. Added I would also add that, in this case, having the Aussie dollar will reduce the risk premium we have to pay for credit

Costs

1. Can’t use monetary policy to compensate for region specific shocks – dairy price crashes and we can’t use a lower interest rate to help buffer the fall.  This is the primary concern.
2. Can’t use inflation to lower public debt – our monetary policy is now determined by Aussie.  However, we don’t do this so it doesn’t matter.
3. As fiscal policy is independent it can cause issues with splitting “seigniorage revenue“.  With a low inflation target this is not a biggie at all.
4. Speculative attacks prior to the union.

I have not checked myself, but understand it has been very rare for the NZ Reserve Bank to be increasing interest rates while the Australian RB is lowering them, and vice-versa.

Hence it seems to me the pros rather outweigh the cons.

It not only shows you how much your tax will be in Oct 2008, April 2010 and April 2011 but also what the same tax would be in Australia.

They have also calculated how much you need to earn to be paying less tax in NZ than Australia. It used to be $1,571,922 but now life gets better in NZ at merely $1,284,992.

The Visible Hand in Economics has also links to three other calculators

1. Infometrics which gives you the annual and weekly reduction in tax and percentages
2. Labour, which includes WFF for the breeders
3. NZIER which has an Excel spreadsheet

Worth remembering that the annual figure for Oct 2008 will be half that, as it only applies for half the year.

NZIER helpfully also shows you what your tax would have been in 2000 in both NZ and Australia. So if you are on $100,000 you would have been paying the same tax in 2000 ($22,057 in NZ and $22,446 in Australia). In 2010 it will be $30,588 and $26,569 respectively. This assumes 3% wage growth.

Matt Nolan at TVHE also looks at the impact of both tax cuts and huge spending increases on inflation. He thinks it is possible inflation may hit 5%, which would suggest interest rates staying high for a while yet.