Wednesday 22 May 2024

Free trade for free countries

Matthew Yglesias at Slow Boring reiterates the case for American free trade with likeminded countries

What we ought to be doing is trying to minimize the total amount of trade barriers, and thus the economic cost of pursuing competition with China, by reducing as many trade barriers as we can. We should stop complaining about cheap Canadian lumber. We should stop blocking imports of Latin American sugar. We should let Toyota sell cheap small trucks to Americans who want them. We should, frankly, probably start buying (or leasing2) warships from Japan and Korea, where they actually know how to build ships. America is toast in a conflict with China if we can’t count on cooperation with our friends, so we may as well optimize on maximum economic efficiency and the freest possible trade within the free world. This also applies to quasi-trade in professional services — we should make it easier for foreign doctors to practice here, and have the FDA and European drug regulators work together so approval by one agency will let you sell on either side of the Atlantic. There’s a lot we can do to work together internationally and increase prosperity.

It seems obviously crazy that the US wants countries to reduce trade links with China while setting tariffs on countries that it calls friends and allies that encourage them to trade with China instead. 

That was my column over in the Post on Monday. 

I think it's a bit crazy that New Zealand has been talking about tighter defence arrangements with the US without having a secure trade deal with the US already in hand. China is our largest trading partner. We have a free trade agreement with them. And while there have been occasional bits of weirdness facing goods entering, they don't stick giant tariffs on our exports. 

Easy to check this for yourself, even though MFAT in general seems to prefer not making a big deal about how protectionist America is (contrast MFAT's correct and explicit views on the evils of Canadian trade practices, with softpeddling on America's). 

MFAT has a Tariff FinderMFAT has a Tariff Finder. Click the Exporting button; you're pretending to be a NZ-based exporter. Then compare tariffs on your exports if you're exporting to China, and if you're exporting to America. You can find China among the FTA partner countries on the drop-down list; the United States is on the non-FTA partner list. 

When NZ got its FTA with the UK, people made a big deal about onions now getting tariff-free access to the UK. So let's check onions. The US charges 0.83 cents/kg; no tariffs for entry into China. 

Is the Chinese ambassador wrong when he says that China has been a more reliable trade partner for New Zealand than the US has been? 

NZ trade with China can be subject to holdups at the ports if the Chinese government is mad at us - and what happened with Australian wine is concerning. 

But NZ trade with the US depends on madness in American farm states and whatever populism Congress wishes to appease [and trade with Canada is even worse - America at least tries to do its protectionism within the rules; Canada signs agreements it knows full well it will immediately break]. 


If US trade policy really were about global geostrategic stuff, rather than mainly being protectionism, they would be opening trade as Yglesias suggests. 

And while neither the Republicans nor the Democrats show much interest in being reliable trade partners for anyone, I'd be a bit nervous about AUKUS. 

Contestable advice

Danyl McLauchlan over at The Listener on the recent shift toward more contestability in public policy advice in education:
Education Minister Erica Stanford, one of National’s highest-ranked MPs, is trying to circumvent the establishment, taking advice from a smaller pool of experts – some linked to right-wing think tank the New Zealand Initiative – instead of the traditional so-called experts. The Education Ministry itself is facing heavy job losses – 755 staff. Many of its core functions will be contracted out to consulting firms, especially in areas linked to Stanford’s reform programme: rebuilding the curriculum; an emphasis on reading, writing and numeracy; consistent assessment and reporting; better use of data and analysis.

There’s also a focus on improved teacher training. A recent Education Review Office report said 60% of principals believed their new teachers were unprepared to enter a classroom. It urged the sector to adopt stricter entry criteria for training programmes and to conduct exit exams.

The universities rejected the criticism, and the government is now considering expanding private-sector training.

If one cluster of advisors centered around MinEd has been providing advice that leads to terrible outcomes, good idea to seek advice elsewhere.

Tuesday 21 May 2024

Afternoon roundup

A closing of the browser tabs:

Paper-clip monitoring departments

Great piece by Adrian Wooldridge at Bloomberg, syndicated at BusinessDesk, on the dangers when corporates shift into stakeholder management.
Regulation not only diverts companies’ focus from outside (serving customers and mastering technological change) to inside (monitoring internal processes). It also contributes to internal bureaucratisation.

After the government creates a department of paper-clip regulation, the corporation must perforce create its own internal department of paper-clip monitoring – and soon the head of the paper-clip monitoring department is demanding a seat on the executive committee. A second culprit is the shift from shareholder capitalism to stakeholder capitalism.

Shareholder capitalism provided companies with an external discipline: If CEOs diversify into unrelated businesses or engage in vanity projects they are soon punished by the market and disciplined by their boards.

But stakeholder capitalism weakens external discipline and increases the power of jostling pressure groups. CEOs can claim they need to engage in this or that grand project to earn their licence to operate regardless of the short-term impact on shareholders. Pressure groups can argue the company needs to pursue this or that good cause to satisfy this or that stakeholder group.

New Zealand's External Reporting Board requires so much paper-clip monitoring.... 

Monday 13 May 2024

Afternoon roundup

The closing of the tabs...

Friday 10 May 2024

Robertson's Seventh Budget?

Dan Bunskill reports on Finance Minister Nicola Willis's speech this week:

Willis said it wouldn’t be a “big-spending” Budget, knowing that Crown finances could get worse before they get better, but she wouldn’t “overreact” to worsening forecasts either.

It will not be “an austerity Budget, of the sort suggested by a few commentators seemingly enthusiastic to see the mistakes of history repeated”.

“Our Government knows how devastating it would be if we were to give up on overdue tax relief, to drastically cut-back on investment and public services, and to downsize our ambitions for growing New Zealand’s economy”.

"Drastically cut-back". 


National hopes to get core spending down to 30% of GDP, sometime. 

Ardern's 2019 Wellbeing Budget was forecast to cost 28.8% of GDP over the medium term. Willis wants to avoid "drastically cutting-back" to a level higher than Ardern had set. 

Pretty easy to read those lines in Robertson's voice really, maybe other than the bit about overdue tax relief. 

As I'd put it in The Post earlier this week:

Tax revenue and government spending are both substantially higher than they were before 2020’s Covid lockdown – whether measured as dollars collected and spent, or as a fraction of overall economic activity.

Core tax revenue rose from just under 28% of GDP in 2019 to just over 29% of GDP forecast for 2024. But core government spending increased from 28% of GDP to 33.4% of GDP over the same period. The difference between the two is a problem.

Government spending increased by over six percentage points of GDP in 2020. Spending to deal with the worst parts of lockdowns and border closures mattered. But wage subsidies are now gone. Borders are open. And core government spending, as a proportion of GDP, is forecast to be only about a percentage point of GDP below its peak.

If you think the continued increase is because government has had to put more money toward healthcare, in the wake of Covid, and toward education, for dealing with the lingering effects of Covid through the school system, check the figures.

In 2019, education and health together were about $30 billion of a $100 billion government budget – 30% of the total. If education and health were pulling spending upward, they would now be a larger fraction of the larger budget. But Budget 2023 had education and health as about $44 billion of a $176 billion government budget – about 25%. Health and education are not what has driven the overall increase.

Compare growth in health and education spending with growth in other areas.

Spending at the Ministry for the Environment increased from $708 million to just under $3.5 billion over the same period. Transport’s budget also more than doubled – from just under $5 billion to just over $10 billion.

The Ministry for Social Development went from $26 billion in 2019 to $41 billion in 2020 – understandable when the wage subsidy was in place and lockdowns blocked jobseeking. But MSD’s 2023 budget was $43 billion, despite relatively low unemployment rates.

I'd there concluded:

Basic maths lays out the options. Spend less, take more in taxes, or a bit of both. Anything else reeks of denial. But surely a May budget set by a National-led coalition Government ought to balk at setting a core spending path entrenching government spending as a larger share of the economy than Finance Minister Robertson promised in 2019.

What I'm really hoping for in Budget 2024 signaled strong consolidation for Budget 2025. Set each budget line for 2025 as the same fraction of GDP as it was in Budget 2019 - as a baseline starting point. Ditch programmes that don't make sense to maintain stronger funding for ones they want to keep. 

I'll be at the lockup. The last lock-up was really rather fun. At least for me. Maybe less so for a few others. 

Wednesday 8 May 2024

Fashionable follies

A fashion industry group is lobbying for protections. They make the usual arguments and a newer one. None of it makes sense.
An industry group says it pumped $7.8 billion into the economy last year - that's 1.9 percent of New Zealand's GDP.
They could be right; I'm not going to check the figure. But if the industry entirely disappeared and we relied on greater imports of clothing, GDP would not drop by 1.9%. Capital and labour would shift to other sectors, which would expand.
"What we really need is someone to take us under their wing and fight for us," designer and Mindful Fashion chair Juliette Hogan said.

"From the beginning with a levy on garments coming into the market, then at the end that levy is actually used to invest in recycling technology."
This is protectionism wrapped in circular economy nonsense. Setting a fixed per-garment charge raises the relative price of low cost product relative to higher cost products. 

Suppose that it currently costs $20 to get a garment of similar quality to a $10 import. If you buy local, you're sacrificing two shirts or whatever to get one local one. If a $10 fixed charge is set on every garment, then imports rise to $20 and locals rise to $30. You now only have to sacrifice 1.5 shirts or whatever when choosing to buy local. 

The fixed levy shifts relative price ratios between local and foreign-sourced goods. And that's the protectionist point of the thing. Or, if they've convinced themselves that that isn't really what they're doing, it's nevertheless the effect.

In any case, garments do go through a life cycle. New, to used, to thrift shop, to rags, to landfill. Landfills charge on amount disposed. It's all fine. If there really were a more cost-effective way of reusing, people would be doing it already. 
The Government has ruled out putting levies on products from overseas.
That's a relief!
Another challenge it wants help with is training. 

Tim Deane owns Norsewear, a company that uses top-end knitting machines to make merino socks. 

He's trying to find ways to teach his 20 staff to use new and complex machinery.  

"It's almost impossible for me to find any technical courses that can be used to upskill them. Now there is nothing," he said.
If a polytech put on a course training people to use very specific industry machines, could it recover the tuition cost? Courses for forklift operators can make sense - the country has a lot of forklifts and there are basics that transfer across the things. 

It could be that there are enough top-end knitting machines across the country that a polytech could put on a course and not lose money on it - oughtn't that be the test?