Chris Trotter's brain hasn't melted

After the 2017 election, the brains of some folks on the NZ right seemed to melt. They imagined that Ardern was controlled by Davos, or the World Economic Forum, or the International Socialist Youth of which she had been President, or Soros. 

It was all just stupid. Labour had won the election, there were no conspiracies, and that people with similar outlooks chat with each other is hardly scandalous no matter how much crazy people want to claim that it is. 

Same thing's happening now with National's election. 

Chris Trotter figures it fills a psychological need on the left: someone external to blame for the loss.

THE ATLAS NETWORK has been trending lately – in the minds of the New Zealand Left. Devastated by the election result, and further demoralised by recent polling showing the Right increasing its grip on New Zealanders’ political imagination, the Atlas Network has provided the Left with what it most needs – an explanation for its failure.

I expect that's a reasonable part of it. But also a general view that throwing mud can make one's ideological opponents less effective regardless of whether any of it makes a darned bit of sense.

Trotter concludes, but read the whole thing:

It is highly instructive that left-wing politicians with CVs that show them working for “progressive” organisations, NGOs and yes, even left-wing think tanks with links to billionaire donors, are not portrayed as evil-doers by the mainstream media. Having a background in the trade unions, student organisations, environmental groups, etc, is seen as perfectly natural. Where else are left-wingers going to learn their trade? Exxon? British & American Tobacco? Pfizer?

David Seymour’s links to the Atlas Network do not make him a villain. Working for the Frontier Centre for Public Policy is not the same as working for Hamas. Morally speaking, is taking money from oil companies really all that distinguishable from giving money to oil companies every time we fill up our petrol tank? Getting from A to B; winning the battle of ideas; the Devil clips our tickets either way.

The Left’s election defeat is not the work of the Atlas Network. It is not even the work of David Seymour and Act. It is the work of ordinary citizens who liked the Right’s stories better than they liked the Left’s. If the Right’s stories were made more convincing by a sympathetic think tank, then the Left should not be getting mad at their opponent’s effective apparatus, it should be getting mad at itself for not having one of its own.

After you've read Trotter, watch this excellent 1985 documentary about a real conspiracy. 

Morning roundup

The morning's clearing of the tabs...

• Price theory is the core of everything that's good in economics. Albrecht and Hendrickson explain the basics. Price theory emphasises exchange and emergent outcomes. Public choice studies politics as exchange. It's fun to think about what would happen if an incoming government required Ministry Chief Economists to pass a test based on workouts in the old Alchian & Allen textbook.  
• Like the idea of government paying a bonus to people for having kids? Robin Hanson has a neat way of doing that. But I doubt that proponents of baby bonuses will like it. 
• This came out a while back but I'd missed it. Surprisingly enough, hydrogen deposits seem to form underground in spots where olivine is prevalent in the presence of heat and water. NZ has a lot of olivine, and heat, and wet. I wonder if anyone's gone looking for hydrogen - geological deposits hadn't previously been thought possible. If we have some, stick a pipe in it to power a boiler and generator above the deposit, and you'd have electricity that generates water rather than CO2. Seems a longshot, but would be pretty sweet.
• Chris Trotter is nostalgic for a joyous left. Excellent piece. 
• This kind of thing pushes electricity toward a global law-of-one-price, doesn't it?
• Henry Thompson on the Industrial Organisation of the Mafia, forthcoming in the JLE.  
  

  This paper uses economic reasoning to analyze the organization of one of the most successful criminal groups in modern U.S. history: La Cosa Nostra (LCN). Drawing on recently declassified FBI reports and a hand-collected dataset, I argue that the costs of violent disputes are key for an economic understanding of LCN’s core institutions. Violent disputes were costly for LCN as they consumed resources to produce and were destructive. However, violent disputes were especially costly to LCN because of its need to keep a low profile. As a member did not bear the full costs of a profile-raising police investigation, each had a perverse incentive to resolve a dispute with violence. Hierarchical firms and a sophisticated court system were LCN’s solution. They gave bosses the authority and incentive to limit violent disputes and to use violence judiciously. LCN’s longevity and success are, in part, a testament to the institutions’ efficacy.

   

The modest Dr. Wilkinson

Bryce Wilkinson writes in response to Chris Trotter's generous crediting of him for many of the reforms of the 1980s:

To set a few things right for the record: 

1. Economic Management was the work of many. It was the pooled work of many divisions, only two of which were economic divisions. My input related to areas that involved Economics I division, which was where I was the time. The central figure was Dr Graham Scott. He led and coordinated its production, oversaw its contents and structure and wrote some of the major sections himself. Murray Horn helped Graham pull it together. Graham reported to Jas McKenzie who was also a major intellectual force. Roger Kerr's role was seminal as head of Economics II division. But his team contained very impressive people pulling their weight. All in all it was an incredible team effort, having to be written in a few weeks because of the snap election, when public policy settings were unsustainable. 

2. Economics II at the time was staffed by some excellent young economists, but the only one that I can think of who had a recent US university education at the time was Rob Cameron. He studied at Harvard's Kennedy School as I recall. (He was on a Harkness Fellowship). The Kennedy School was not Milton Friedman's Chicago. 

3. Rod Deane was never a member of Treasury's "Think Tank". He was in the Reserve Bank. 

4. There was no special adviser called Doug "Anthony". Perhaps you meant Doug Andrew. 

5. Economic Management was not a monetarist document. If anything it reflected a Harvard/Yale view rather than a Chicago view. For example, it did not advocate target growth rates for M2, or any other monetary or credit aggregate. 

6. The foreign exchange crisis in 1984 was real. The outflow of cash in that last few months of Sir Robert Muldoon's administration was such that the Reserve Bank did not have the reserves left to defend the currency on the Monday after the election on any prudent projection of the likely demand. This was no figment of anyone's imagination. The notion you try to convey through double quotes of a contrived conspiracy theory is spin that is detached from this reality. 

7. Where am I reported as saying that "racist attitudes and red tape were making New Zealand one of the most restrictive regimes in the world"? New Zealand does have one of the most restrictive regimes (involving red tape) on the OECD's measure. (See chapter 3 of The New Zealand Initiative's 2013 report Capital Doldrums summarises international rankings of NZ's FDI regime, in particular chart 7 on page 25.) Fear of foreign influence does not have to be primarily racist. I made this clear in some of my interviews, but I don't know to what extent those components were broadcast. For the record, I don't think racism is a major factor behind NZ's regime. I doubt if it is even a material factor. Who in NZ would feel racist towards Australians, for example?   

In praise of Bryce Wilkinson

Chris Trotter provides an excellent tribute to my colleague, Bryce Wilkinson.

DR BRYCE WILKINSON can make a reasonable claim to have written the book that launched neoliberalism in New Zealand. The name of that book was Economic Management, and although its official author was the New Zealand Treasury, most historians agree that the book’s guiding intellect was Dr Wilkinson’s.

Economic Management knitted together, into what amounted to a detailed manifesto, a raft of radical economic measures that had been worked out in “Economics II” – described by Te Ara, The Encyclopaedia of New Zealand, as: “a think tank in the Treasury in the late 1970s and earlyof a 1980s.”

Economics II was staffed by young economists who had studied at universities in the United States where the monetarist theories of Milton Friedman, and the ideas of neo-classical economics generally, were already well-entrenched. Along with Dr Wilkinson, Treasury’s “think tank” included Graeme Scott, Rod Deane and Roger Kerr – individuals who would go on to play pivotal roles in the execution and consolidation of the neoliberal order in New Zealand.

I'm rather sure that Bryce was Canterbury trained: one of the Gnomes.

It would be Dr Wilkinson’s Economic Management which set the course for what would later be called “Rogernomics”.

Readers of Bowalley Road born after those heady days in 1984, and thus played no part in the great struggle for Labour’s heart and soul that raged from July 1984 until the ejection of Mike Moore from – and the elevation of Helen Clark to – the leadership of the Labour Party in 1993, have been supplied with this brief sketch of the role Dr Wilkinson has played in New Zealand’s recent history, so that they can put his statement on foreign investment and racism, released earlier today (17/8/15) into some kind of context.

Commenting on the KPMG report showing China to be only the second-largest foreign investor (after Canada) in New Zealand (excluding residential property) Dr Wilkinson is reported as saying that “the report tackled many New Zealanders’ fears that China was buying up land, farms and businesses.” Anxiety about China was producing a “silly defensiveness” he said, adding that “racist attitudes and red tape were making New Zealand one of the most restrictive regimes in the world”. According to Dr Wilkinson: “We should be much freer and more open to the rest of the world and that helps New Zealanders get a better price for their assets which means they can invest more in the rest of the world themselves.”

More free and open! Such is the prescription of the man who, along with his colleagues from Economics II, persuaded the fourth Labour government to transform New Zealand into the most “free” and “open” economy on Earth. The man who urged on the sale of public assets to “foreign investors”, who were then free to repatriate the billions of dollars of profits extracted from them to their new owners offshore. The man who now calls those attempting to keep what remains of New Zealand’s assets out of foreign hands “racist”, but whose policy of preparing state-owned entities for privatisation saw tens-of-thousands of Maori forestry workers, railway workers and construction workers thrown out of their state jobs – leading to the disintegration of whole communities and the fracturing of whanau.

Small and unprepossessing, smiling his grandfatherly smile in the group photos of the New Zealand Initiative (successor to the now defunct Business Roundtable, which for many years was run by another alumnus from Economics II, Roger Kerr) Dr Wilkinson would be passed, unrecognised, in the street by 999 out of 1,000 New Zealanders. And yet, unelected, and largely unknown outside the neoliberal elite, this little man has left a very big impression on our country.

I’ll leave it for you, the reader, to decide whether it has been for good or ill.

I cannot imagine having been willing to move to New Zealand had Bryce and his 80s colleagues not achieved the changes they then made. I'm very proud to have him as a colleague.

The Unemployable and the Unemploying

Well, which is it then? Are large hikes to minimum wages desirable because they transfer money to low wage workers with no real disemployment effects, or because they get rid of those jobs that shouldn't be there anyway?

Early American advocates of the minimum wage sought its disemployment effects, to make "unemployable" those whose employment was undesirable: immigrants who would "under-live" upstanding American workers, and women whose proper place was in the kitchen rather than in employment binders.

Most advocates of higher minimum wages in New Zealand point to recent American studies showing little disemployment effect of minimum wages. And they're right: the most recent American work does show little measurable effect. Minimum wages are far lower there; non-binding constraints largely fail to bind. The effects on poverty aren't that simple though: the products of minimum wage workers are disproportionately bought by poorer people; incidence analysis warns that a reasonable proportion of mandated wage hikes will be passed through to customers. And, in places like Canada where the minimum wage is higher and more binding, there's some evidence that minimum wage hikes increase poverty: the losses to families losing second-earners because of disemployment effects outweighed the gains to those families enjoying a small salary increase.

Here's Chris Trotter with an alternative take. After reasonably critiquing Labour Leader David Shearer's immigrant-bashing, Trotter reads the tea leaves:

This means that any Labour government led by Shearer is likely to shy away from direct interventions in the labour market. It will not pass legislation designed to reverse the flow of wealth from wage and salary earners to owners and shareholders. It will not, by substantially lifting the minimum wage, engineer a wholesale winnowing-out of New Zealand's most inefficient businesses. It will not pass legislation restoring universal union membership or the national award system. It will not use the government's ability to set wages and salaries in the public sector to provide both a guide and a goad for private sector employers. In short, it will not do any of the things required to raise the incomes of New Zealand's wage and salary earners. [emphasis added]

Is Trotter there really saying that part of the point of a minimum wage is to clear out firms employing low-cost labour? Where the old-school Americans wanted to make undesirables 'unemployable', Trotter seems to want to make lower productivity firms 'unemployingable'.

You can maybe build a model where this works. Specify that workers are really really sticky with a current employer: actual wage differences from shifting jobs have to be really high before they'll engage in any search or entertain new job offers. Other, more efficient, employers would love to hire them, but they can't. You'll also have to specify either that markets for corporate control are just broken, preventing the takeover of less efficient firms by more efficient management, or that the firms are in sectors that are simply inherently less productive. Killing those firms allows the workers to shift over to alternative, more productive, employment. It sure doesn't seem a plausible model though.

Further, it can often be the case that lower skilled workers are complements to higher skilled workers. Here at Canterbury, a few years before the earthquakes, the University got rid of some of the cleaners and started making staff empty their own waste baskets into central bins on each floor of each Department.* It saved on some low cost workers' salaries, but at a higher and unmeasured opportunity cost. For every low productivity firm that's killed by Trotter's prescription, how many lower productivity tasks in higher productivity firms are also ended? What do we do with those whose endowment of human capital means that their marginal revenue product will never be higher than the current minimum wage?

* The veneer: sustainability, we should be throwing less stuff out, etc.