Treasury needs more than more economists

Suppose that the Minister of Finance asked Treasury for advice about a Ministry of Health budget bid. In our hypothetical case, one of the District Health Boards had mishandled hiring over several years. The Medical Officer of Health’s office had staffed up with armies of lawyers able to object to every single alcohol licence renewal, but the DHB had not hired nearly enough doctors and nurses. The budget bid showed that, without additional doctors, a lot of people were likely to suffer badly for want of service.

It would be hard for government not to bail out this hypothetical DHB. But we might hope that Treasury would advise some governance changes at the DHB to prevent the problem from recurring there or elsewhere. Treasury must balance different Ministries’ competing claims for scarce funding; economists at Treasury would understand the incentive problems created by rewarding poor practice with greater funding.

In last week's National Business Review (print edition), I went through more of the problems with Treasury's having de-emphasised economics. Just hiring more economists there isn't enough.

I noted the worrying bits I'd been told about from Treasury's internal staff survey.

I've copied a few snippets from the print piece below; I'll link it once it's online (we have an ungated version here now).

I have requested the [2017 external stakeholder] survey as well as Treasury’s reasons for failing to follow prior years’ practice in putting it up on Treasury’s website. But I have also informally seen parts of it, as these things have a way of floating around town.

And I think I know why Treasury has not released it.

The summary table shows every single measure of stakeholder satisfaction has declined since 2015.

Results in prior years were worse on some measures than in 2015, so it would be a mistake to call this an across-the-board longer-term downward trend. But for the key issues related to economic capabilities, decline is evident – and especially from 2015 onward. Perceptions that Treasury staff are well-informed ranged from 74% to 76% from 2011 through 2015 before dropping to 66%.

Confidence that staff do a good job ranged from 74% to 77% from 2011 through 2015 before dropping to 68%. And the only measure on which 2017’s result was not the lowest was agreement that “I can offer the Treasury insights” – a measure of ambiguous interpretation.

I also understand the sharpest drop in satisfaction with Treasury was among those who generally interact with Treasury about economics. The 2015 survey showed that 70% of stakeholders interacting with Treasury about economics, macroeconomics, or fiscal projections were satisfied with that interaction. I understand that the current survey has that figure below 50%.

I also put up the declining internal quality scores assigned to Treasury policy advice papers (from the annual reports).

The measure of the quality of advice suggests there's a problem. The internal staff survey says there's a problem. The external stakeholder survey says there's a problem. But Treasury still goes and celebrates getting an award for not hiring economists. Treasury needs more economists. But it also needs to be the place where good economists want to work. Celebrating not hiring economists doesn't help with that.

During my time at Canterbury, Treasury and the RBNZ competed for our best honours students - and nobody bothered trying to hire until those two had had their picks of the litter. In the prior era, nobody moved before Treasury and RBNZ because they expected that the best students preferred to wait to see whether they'd get an offer from Treasury or the Bank.

I've been told since then that some are hiring before Treasury and that that's making it harder for Treasury to hire, but that has to be endogenous to how graduates rank an offer from Treasury relative to other places. If folks are moving ahead of Treasury, it might be because folks aren't expecting to be left hanging while an applicant offered a job waits to see if an offer from Treasury's coming.

Perhaps Treasury should be having chats with the graduate studies coordinators in the different departments to see what's going on.

If a private company showed declining product quality, staff saying they were losing expertise and that expertise in the core business isn't valued, and external stakeholders saying things were going down, and it were all consequent to a push by the Chief Executive to diversify away from the company's core business...