Of course it’s the economy

September 3, 2014

The latest Roy Morgan poll identifies economic issues as the most important in New Zealand:

 Just three weeks before NZ heads to a National Election, Economic issues (41%, down 3% since May 2014) are still clearly the most important problems facing New Zealand however the biggest problems facing the World today are War & Terrorism issues (35%, up a huge 15% since May) now ahead of Economic Issues for the first time ever according to the latest Roy Morgan Research conducted in July and August 2014.

New Zealand views on Problems facing New Zealand
When asked about the most important problem facing New Zealand, 41% of New Zealanders mention some kind of Economic issue. This is down 3% since May 2014 but still well ahead of Social issues (24%, up 3%), Government/ Public policy/ Human rights issues (19%, up 1%) and Environmental issues (6%, down 2%). . . .

Of course it’s the economy and economic issues that matter.

Only if the economy is growing can we afford the first world social services and infrastructure we need and the only way to make funding for these sustainable is with sustainable economic growth.

National’s policies are sustainable, Labour/Green/New Zealand First/ Internet Mana ones aren’t.

 

 


Grow garden not pie

August 28, 2014

Slicing or growing the pie is a popular metaphor in discussions on the economy.

Keith Hennessey has a better one. He likens the economy to a garden:

The most common metaphor for debates about growth and income distribution is that of the economy as a pie. Some focus their policy efforts on economic growth and efficiency: making the pie bigger. Others emphasize policies that increase equity and redistribute income: how shall we cut up the pie and distribute its slices, whatever its total size?

We learn early in introductory economics that there is a big tradeoff between these two goals of equality and efficiency. Higher marginal tax rates allow for more income redistribution but create disincentives to work, save and invest and thereby reduce economic growth. Policymakers try to optimize, but at the end of the day someone has to decide whether faster economic growth or increased equity is the higher priority. . .

A flower garden is a better metaphor for looking at economic growth and income distribution. A flower’s growth depends on the individual characteristics of that type of flower and that particular seed. It also depends on common factors shared with other flowers in the same garden (e.g., the local climate, pests, the skill and diligence of the gardener) as well as its particular advantages relative to other flowers (better sunlight, soil, and water in this part of the garden than that part over there).  Although there is some interdependence, the rapid growth of a sunflower at one end of the garden largely does not come at the expense of a struggling tulip at the other end. The sunflower may have advantages the tulip does not, even unfair ones, but the fast-growing sunflower is not “taking growth” from the slow-growing tulip.

Flowers will grow at different rates for a variety of different reasons. Policymakers should focus their energies on absolute growth rates rather than relative ones. It’s not a problem that some flowers are growing faster than normal, unless (a) that growth is indeed coming at the expense of other flowers, or (b) that more rapid growth is because the gardeners are neglecting the tulips to help the sunflowers grow faster.

The role of policy makers is to provide good law to ensure competition is fair and that businesses face their share of external costs, it isn’t to interfere in the market.

In the same way it makes more sense to think of economic growth as the sum of the unequal income growths of tens of millions of separate individuals, rather than as a single growing pie to be divided. Any particular individual’s income growth depends on his innate talent, education, and skills, his effort and diligence, and some degree of luck. It also depends on common factors such as the health of the local, regional, national, and world economies, as well as shared resources like transportation and communications infrastructures and a stable and predictable system of law, property rights, and government rules.

The principal economic challenges are to maximize the growth potential of the entire economy/garden and to maximize the opportunities for those individuals/flowers struggling to succeed/grow. And just as a gardener should spend more time tending to the parts of his garden that are struggling, policymakers should devote greater effort to maximizing opportunities for those at the bottom of the income distribution to improve their lot. In the long run this means things like improving elementary and secondary education, expanding free trade, and reducing the growth burden of regulations, government spending, and debt. In the short run it means getting the incentives right so that those on means-tested government assistance don’t face exorbitant marginal effective tax rates from poorly designed income phase-outs.

Benefits should be to support those who need it while they need it, not a disincentive to people who can help themselves to do so.

The flower garden metaphor has one final advantage over the pie metaphor. A pie does not exist without a baker, whereas flowers grow naturally. The growth comes from the flowers, facilitated but not created by a good gardener. In the same way policymakers and elected officials neither “create jobs,” nor “increase economic growth.” Smart policymakers create the conditions under which private firms create jobs and in which millions of individuals combine their separate efforts to create economic growth. The origins of economic growth are in the private sector, not the public.

In an area of economic policy as complex as this, a good metaphor matters and can influence policy. Policymakers should create the conditions under which the whole economy can grow as rapidly as possible, and should devote particular effort to maximizing the potential for those most struggling to succeed. Let’s not fight about dividing up the pie, but instead work to help the whole flower garden, and all the flowers in it, to blossom.

 The garden is a healthier, more attractive and natural  metaphor than the pie and provides a much better picture of good economic management.

The election gives us a choice between the National gardeners who respect the ability of businesses and individuals and understand the conditions which will help them flourish and the Labour/Green/NZ First/Internet Mana who don’t.

Hat tip: AE Ideas


Gap just 4% in poll of polls

August 10, 2014

Colin James is doing a poll of the four most recent polls each week until the election.

The first one shows that the gap between a National-led government and a Labour-led one is just 4%:

National’s polling average may have peaked during July at 52.5% in the four polls up to mid-July. By end-July it was at 50.3%. That is still a very healthy figure under MMP but if National sheds only 4% by election day, it cannot count on a third term, even with help from ACT, United Future and the Maori Party.

At the comparable time before the last election National was averaging around 56%. It dropped 9 percentage points from there to 47.3% at the election.

(The POLL of POLLS is an arithmetical average of the four most recent major polls, and will appear as a special series of election columns every Saturday on radionz.co.nz until after the election on September 20.)

james poll

 

 

 

 

 

 

 

This isn’t all bad news.

National’s continued high polling could have led to complacency from supporters who thought they didn’t need to vote or could afford to play with their party vote and from people who want National to win but not too well.

Another important election pointer also looks to have gone through a peak in July: Roy Morgan’s measure of whether people think the country is going in the right direction or the right direction. Those saying “right direction” were at 60% in late July, down from measures ranging from 63.5%-65.5% through the previous two months.

But that is still a very high reading. In a first-past-the-post election it would point to an easy re-election for an incumbent government. It is one reason why National continues to poll so highly.

 

This isn’t an FPP election and while the positive view of the direction the country is heading in is good for national it isn’t good enough for complacency.

The contrast between a stable government led by a strong National Party and an unstable government led by a weak Labour Party which gives lots of bargaining power to the ill-assorted parties they’d need to have on board is stark.

But there is still a lot of work to do to convince enough voters to do the right thing – in all senses of the word.

It might help if more people realise that David Cunliffe’s yeah-nahing over whether or not Internet Mana will be in a government he leads is just words which don’t speak nearly as loudly as the actions of his candidates:

 

mana

 

 

 

 

 

 

 

 

 

The marriage between Internet Mana and Labour which John Minto thinks is made in heaven  would be hell for New Zealand.


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