Dennis Wesselbaum: How real-time data can lead to better decisions on everything....

How real-time data can lead to better decisions on everything from NZ’s interest rates to business investment

It is late July, and New Zealand is slowly receiving economic data from the June quarter. Inflation has hit a 12-month high, for example, confirming what many already suspected. But the country is still nearly two months away from getting figures on economic activity – namely, gross domestic product (GDP).

Dennis Wesselbaum: Willis warns of a ‘tight’ budget to come....

Willis warns of a ‘tight’ budget to come, but NZ should be going for productivity, not austerity

Finance Minister Nicola Willis has warned her 2025 “Growth Budget” will be “one of the tightest budgets in a decade”, with plans to reduce spending by billions.

Dennis Wesselbaum: NZ’s productivity stagnation requires a long-term plan from politicians. Here’s how

In the ups and downs of the global economy over the last decade, New Zealand has had one relatively consistent challenge: persistent productivity stagnation.

Productivity compares the amount of goods and services produced (output) with the amount of inputs used to produce them.

Since the Productivity Commission was set up in 2011, annual productivity growth has averaged at just 0.2% – one of the worst in the OECD.

Dennis Wesselbaum: Learning about inflation

Common advice to public speakers is to start with a joke. So perhaps outgoing Prime Minister Chris Hipkins was only joking when he kept saying, “We are winning the battle against inflation”. Cost of living crisis – what crisis?

Labour defended high inflation rates by referencing other countries’ poor records – the “global inflation shock”. Meanwhile, countries like Switzerland, Indonesia, South Korea and Japan maintained lower inflation rates than New Zealand.

Dennis Wesselbaum: Ruling out a wealth tax

The Prime Minister has ruled out a wealth tax so long as he is leader of the Labour Party. The promise may have been driven by recent polling, but it is sound economics nevertheless.

A wealth tax is defined as a tax on the ownership of net wealth: a person’s assets minus debts.

The tax would apply to various asset types. It is, therefore, different to other taxes, which either tax the transfer of wealth (inheritance tax) or the increase in wealth (capital gains tax).

Michael Johnston, James Kierstead, Dennis Wesselbaum: Policy point.....

.....Victoria and Otago universities employ more non-academic than academic staff

New Zealand’s universities are in crisis. AUT announced 170 academic redundancies last year. Massey is planning to cut a net 36 academic roles. Otago is looking to shed ‘several hundred’ positions, while Victoria University of Wellington plans to cut some 100 academic and 150 professional staff.

Dennis Wesselbaum: Potemkin learning

If you lecture in the theatre and no student is there to hear it, did anybody learn? Welcome to teaching at universities in 2022.

To paraphrase from a famous movie: “Gentlemen, you can’t learn in here! This is the lecture room!”

Five of 160 students attended my Wednesday lecture last week. The lecture theatre had room for 500. Social distancing was simple.

Dennis Wesselbaum: Uncoordinated monetary and fiscal policy during Covid-19

The monetary and fiscal policy responses to the COVID-19 pandemic set the stage for the inflation we are currently experiencing.

In the debate about what drives inflation and who is to blame, one important element has not received the attention it deserves: the coordination between monetary and fiscal policy.

Since Eric Leeper’s work in the early 90’s, we know that the combination between active (forward-looking) and passive (backward-looking) fiscal and monetary policy matters for the price level and inflation.

Dennis Wesselbaum: Policies promoting Electric Vehicles - Too fast, too furious

Politicians are recently pushing for a large-scale adoption of battery electric vehicles (BEV; currently <1% of vehicles in NZ) to reduce the emissions generated by the transport sector.

The emissions reduction plan supports this with $1.2bn of spending, of which $569m are used for the “Clean Car Upgrade” programme. In addition, the government plans to ban importing high-emitting vehicles in the closer future. These policies imply that the government appears to have picked the “best” technology (BEVs) and now wants to implement it.

Dennis Wesselbaum: Inflation in NZ

Inflation in New Zealand has been on the rise (7.3 percent last quarter) as have the attempts to explain it. The RBNZ points to strong global economic activity, supply disruptions, and the Ukraine war. Others highlight fiscal policy, while some eccentrics blame supermarkets.

Supply chain issues do add to inflationary pressures. But these have been easing: the Freightos Global Container Index (FBX) has decreased since its peak in September 2021 by about 42 percent.

The Ukraine war plays some role. But the HWWI commodity price index has decreased by 19 percent since February. Notice that inflation started to increase well before the Ukraine War.

The combination of monetary and fiscal policy is the more obvious cause.

Dr Dennis Wesselbaum: Economics in the New Zealand media: a requiem

The media has largely ignored economics in the last couple of years. The return of inflation, however, has brought economic topics back into people’s minds and into media coverage.

The discussions surrounding the Budget were a low point in the reporting on economics, in my opinion. You might think that experts on, say, fiscal policy would be included in these Budget discussions. However, the Newshub “expert” panel consisted of a journalist (Dita de Boni), a sociologist (Dr. Ella Henry), and an economist (Shamubeel Eaqub), who quickly disqualified himself from being considered an expert.

In response to David Seymour’s comment that government spending drives inflation, Eaqub called Seymour “economically illiterate.” However, among serious economists, there is no disagreement that government spending is a key driver of inflation. In fact, it is what students of economics learn in their first year.