The Dim-Post

March 22, 2016

Labour’s UBI

Filed under: economics — danylmc @ 9:55 am

Via the Herald:

All adult New Zealanders could be given a Government handout of at least $200 a week under a new policy being considered by the Labour Party.

The co-leader of a global network promoting a “universal basic income”, British professor Guy Standing, will be a keynote speaker at a Labour conference on “the future of work” in Auckland next week.

He said yesterday that a system “where every legal resident of New Zealand should be entitled to a modest monthly basic income” would reduce inequality and give some security to people who increasingly have to earn a living from insecure casual and short-term work.

And Labour finance spokesman Grant Robertson said Labour was considering a local version of a scheme developed by economist Gareth Morgan, who proposed paying every adult a basic income of $11,000 a year ($211 a week).

“I’ve spoken to the Morgan Foundation about it. They are continuing to work on the idea,” Mr Robertson said.

“We are looking at how do we ensure income security, and one of the things we are looking at is whether or not a universal basic income could form part of that policy. It’s very early days.”

A discussion paper on the idea, due to be published by Labour today, suggests paying an $11,000 universal income to everyone aged 18 or over to replace all existing welfare benefits except for “supplementary transfers for disadvantaged groups”.

There are some good arguments to be made for a universal basic income, but if you pay every working age New Zealander about $11,000 a year then you’re looking at an additional cost of about $20 billion dollars a year. To put that into perspective, last year the healthcare system and education system combined cost $27 billion. I guess you would claw a bit of that $20 billion back by adding it onto incomes and then taxing it but that is still just a huge sum of money to try and raise. The Capital Gains Tax that Labour campaigned on in 2014 – and which Andrew Little subsequently ditched because it was so unpopular – was supposed to (eventually) raise about $3.7 billion a year. And even if you raised that kind of money, giving it away to everyone as a universal payment seems like one of the least effective ways you could spend it.

March 18, 2016

The Apple Tax

Filed under: economics,finance — danylmc @ 9:16 am

Matt Nippert reckons:

A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.

The analysis of financial information of more than 100 multinational corporations and their New Zealand subsidiaries showed that, had the New Zealand branches of these 20 firms reported profits at the same healthy rate as their parents, their combined income tax bill would have been nearly $490 million.

But according to their most-recent accounts filed with the Companies Office, most covering the 2014 calender year, these 20 companies overall paid just $1.8m in income taxes after several claimed tens of millions of dollars in tax deferments and losses.

It’s a bit weird, on the face of it, that companies pay tax on their profits while workers pay tax on their revenue. If you earn $100,000 a year in salary you don’t get to go on holiday, buy a new car and some jewels and then tell the tax man ‘Sorry, but I broke even this year. I got nothing for you.’

There are good arguments for taxing companies this way but they all rely on businesses actually wanting to make a profit. If many of our largest companies don’t want to be profitable – if they exist to channel revenue directly to parent holders in lower tax jurisdictions overseas and then declare a loss – then the model fails.

Here’s one solution, that I half-thought through while brushing my teeth this morning: give IRD the power to designate deliberate non-profit companies and tax them based on revenue, not profit. Just like the rest of us. This might cause them all sorts of terrible problems during economic downturns but if they’re worried about that then they can shift back to the old model where they declare profits and pay dividends to their parent, not ‘licensing fees’, or whatever, which turn vastly profitable companies into loss-makers.

January 30, 2015

Notes on John Mulgan’s Man Alone

Filed under: economics — danylmc @ 9:24 pm
  • I resolved to read lots of New Zealand novels this year and figured: why not start with one of the foundational texts of New Zealand literature?
  • Which turned out to be a good move because Man Alone is a very good book. Why didn’t I read it a long time ago? A variety of stupid reasons. When I was about twenty a friend told me it was boring, and even though I soon learned that this friend had awful taste his criticism stuck. Also, I had the notion that it was a New Zealand imitation of a Hemingway novel. Who needs that? And I thought – based on the title – that it was a celebration of kiwi masculinity and self-reliance. Also, it is ground zero for the endless academic preoccupation with the emergence of a ‘New Zealand literary identity’, which is not a topic I’m interested in.
  • With all of my mostly false expectations, I did not expect Man Alone to be a Marxist road-trip around the North Island during the great depression which is mostly what it is. A bit like The Grapes of Wrath but with occasional Maori.
  • The main character is an English WWI veteran called Johnson. The first part of the book describes his life drifting from place to place and job to job, then the impact of the depression, then life in a work camp and the Queen Street riots. Mulgan’s thesis here is that New Zealand was a good country with a communal spirit in which men could lead rich, rewarding lives but the predations of capitalism ruined it and transformed it into an individualistic unhappy country. As I’m sure every teacher or lecturer who sets this as a text super-quickly points out, Mulgan’s conception of a ‘good country’ does not include opportunities for women or Maori.
  • As with most political literature the characters tend to function more as symbols than people. One represents the lumpenproletariat, another the petit-bourgeois, etc. The banks and other forms of organised capital exist only as powerful, malevolent impersonal forces.
  • In the second part of the book there’s a shift as the narrative becomes less theoretical and political, and more personal. Johnson settles as a worker on a remote farm (safe from the ongoing crisis inherent to the structure of capitalism – or is he?). The future looks good. Then there’s a love triangle! Suspicion. Murder! A flight into the Kaimanawas, in which Johnson crosses the lower slopes of Ruapehu and then the Rangipo desert on the volcanic plateau.
  • Presumably Mulgan made part of this trip himself, and If I’d read this book when I were young fella I’d probably have tried to replicate it. I wonder if anyone else has? This should totally be a ritual for young New Zealand writers. We might lose a few budding talents to sudden blizzards but that would just deepen the romance.
  • The final section of the book takes place in England and Spain. It feels a little odd: it doesn’t quite fit with the rest of the narrative. Mulgan wrote Man Alone in the UK. Maybe, like a lot of first-time novelists he felt he had to throw all of his experiences into his book?
  • Mulgan isn’t a Great Writer like Frame or Mansfield but I think Man Alone is a great New Zealand novel and a more accessible one than most classics of New Zealand literature. It’s a shame its mostly known among literary/cultural elites. (Whenever I hear anyone wonder why more New Zealanders don’t read or appreciate our local writers I flash back to 5th Form English where they made us read Bliss as our NZ Literature component.)

Update: Also, from the second chapter of Man Alone:

Everybody wanted to buy a farm sooner or later in New Zealand. You didn’t buy a farm and build a house and grow pine trees round it to stay there, but to sell it to somebody else and live off the profit.

Seventy-six years later I guess you just substitute ‘property in Auckland’ for ‘farm.’

July 9, 2014

NZ Household incomes

Filed under: economics — danylmc @ 10:10 am

I’ve been reading Capital in the Twenty-First Century (11% of the way through!) and the recent publication of the 2014 Household Incomes Report makes me wonder if the core hypothesis holds in contemporary New Zealand. Via the Herald:

Growing income inequality is largely a myth, according to the latest household income figures, though the pockets of the poor are hit the hardest by rising housing costs.

Income inequality is a major political issue this election, as the Labour and Green Parties have tried to paint a picture of a widening gap between the haves and the have-nots under the National-led Government.

The 2014 Household Incomes Report, released yesterday, showed income inequality had mostly remained the same since the mid-1990s, and is slightly higher than the OECD average.

Household incomes had rebounded by 4 per cent from 2011 to 2013, making up lost ground after the Global Financial Crisis and the Canterbury earthquakes. The report showed:

Lower earners were hit hardest by the recession, but riches from the recovery were more evenly spread. Overall from 2009 to 2013, average incomes were stagnant for the bottom half of earners, but grew by 5 per cent for the top half.

May 18, 2014

This actually happened

Filed under: books,economics — danylmc @ 6:58 am

I read the introduction to Piketty last night, then dreamed that my computer stopped working because – it claimed – it was contributing to the aggregate increase in the rate of return on capital over economic growth. I do not remember how the dream ended.

I will write more about the actual book later. But I’ve been interested in the debate in the economics blogosphere. Left-wing economists all seem to think Pikety is right and right-wing economists all seem to think he’s wrong. (I would note that the objections I’ve heard from some on the right: ‘Piketty disregards the decline of inequality between nations, cf the development of China,’ or ‘Pikety disregards the ability of education and skills transfer to reduce inequality,’ seem to be issues Piketty addresses in the introduction to his book. Maybe there are more substantive critiques out there?).

Anyway, my point is that the question Piketty asks is important: does capitalism reduce or increase inequality over time? He reckons it increases inequality, left-wing economists agree with him; right-wing economists reckon he’s wrong. What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

April 29, 2014

Labour’s monetary policy

Filed under: economics — danylmc @ 2:21 pm

According to their web site (btw, I notice that Labour’s Red Alert blog hasn’t been updated for about six weeks, indication that Matt McCarten has made a positive contribution) Labour will

  1. Maintain the Reserve Bank’s independence and its inflation target.
  2. Broaden the objective of the Reserve Bank to include the external balance and allow it to use current tools to tackle our overvalued dollar.
  3. Give the Bank a new tool to adjust universal KiwiSaver savings rates as an alternative to raising interest rates. This would mean Kiwis would pay money to their retirement savings instead of higher mortgage payments to overseas banks.

Universal KiwiSaver and a tool to adjust KiwiSaver rates to keep mortgage rates low? I think you can do one of these but not both. If you’re going to compel people to save their money because its good for the economy then that’s one thing. But if you’re going to compel people to save money and then modify the rates to benefit a smaller subset of people who have mortgages you’re in the tricky position of higher rates having a disproportionate impact on lower income earners – who are unlikely to own a home – and benefiting higher income people with mortgages. That’s hard to justify.

April 10, 2014

Vox summary of Pikkety’s Capital

Filed under: economics — danylmc @ 9:10 am

I’ve asked my university library to order in a copy. It’s not here yet but the basic argument seems very simple. Matthew Yglesias writes:

The main concepts Piketty introduces are the wealth-to-income ratio and the comparison of the rate of return on capital (“r” in his book) to the rate of nominal economic growth (“g”). A country’s wealth:income ratio is simply the value of all the financial assets owned by its citizens against the country’s gross domestic product. Piketty’s big empirical achievement is constructing time series data about wealth:income ratios for different countries over the long term.

R is a more abstract idea. If you invest $100 in some enterprise and it returns you $7 a year in income then your rate of return is 7%. Piketty’s “r” is the rate of return on all outstanding investments. A key contention of the book is that r is about 5 percent on average at all times. The growth rate (“g”) that matters is the overall rate of economic growth. That means that if g is less than 5 percent, the wealth of the already-wealthy will grow faster than the economy as a whole. G has, in fact, been below 5 percent in recent decades and Piketty expects that trend to continue. Because r > g, the rich will get richer.

Let’s assume that Piketty is correct and he’s discovered something deep and important about the nature of capitalism. That’s a really big deal, and Pikkety’s work looks like it’ll be a landmark in its field.

Now, obviously I’m not an economist, but from a layman’s point of view this doesn’t seem like this is a very difficult or opaque idea. Pikkety looked at the historic data and noticed a trend. It’s not like, say, Heisenberg’s work on quantum theory – which was so counter-intuitive and nonsensical even subsequent Nobel Prize winners are baffled as to how and why he developed his ideas, but which happened to be correct and revolutionised physics. It’s a little disturbing that after two hundred years of capitalism we’re only now discovering critically important but fairly simple insights into how it works.

April 8, 2014

Politics, lies and the Economy

Filed under: economics,Politics — danylmc @ 1:20 pm

From Russel Norman’s twitter feed:


Does borrowing fifty billion dollars over the last six years mean the Nats are bad with money? I don’t think so. We had an external shock in 2008 (the GFC) and then a massive earthquake, both of which had a huge negative impact on our economy. Interest rates for the government to borrow on the international markets were super-low during this time, so borrowing money was actually a really smart thing to do. We probably should have borrowed more and invested it in infrastructure instead of selling our energy companies and frittering money away on National’s tax switch, which cost billions and totally failed to stimulate the economy.

And I suspect Russel Norman would agree with that. What Russel is responding to here is the massive gap between National’s economic rhetoric and the stuff it actually quietly does. Yes, John Key and his Finance Minister Bill English have borrowed $50 billion dollars from overseas investors over the last six years. But John Key and Finance Minister Bill English have also spent the last six years roaring with horror at the economic plans of Labour and the Greens who want to BORROW MONEY from OVERSEAS INVESTORS! That’s why asset sales are so important, according to English – it’s the prudent, sensible alternative to BORROWING MONEY from OVERSEAS INVESTORS which will wreck the economy, except for the $50 billion he borrowed which was FISCAL and PRUDENT.

Likewise government spending. Interest rates went up recently and the Governor of the RBNZ has forecast more rises over the next two years, so we’ve heard some very stern warnings from English and Key about how the policies of Labour and the Greens will CAUSE INTEREST RATES TO GO UP! We’ve also heard a lot of dire warnings from Bill English about GOVERNMENT SPENDING. So here, via Treasury, is English’s record of government spending over his tenure as Finance Minister:


Again, having the government spend money during an economic down-turn and period of national crisis is a good thing to do. You just don’t get to do it while simultaneously thundering about how the opposition parties want to spend money, which will destroy the economy. Or rather, National does for some reason.

The point I’m trying to make here is that almost every statement Key and the Finance Minister make about the economy is nonsense, pure disinformation dipped in hypocrisy, sprayed with drivel and then airbrushed dry with horrible fucking lies. That’s not part of the conventional wisdom though, especially among political commentators who all have Bill English as a straight-talking dour, fiscal, prudent conservative instead of a big-spending, big-borrowing outrageously dishonest hypocrite who vomits out floods of obvious lies every time he opens his mouth.

It’s a big problem for the opposition. In macro terms National has done pretty-much what Labour and the Greens would have done – with some obvious exceptions like the tax cuts – but pretended that they’ve done the opposite, and warned the country that Labour and the Greens are going to introduce fiscal policies which are basically identical to National’s but which National warns will destroy the economy. It’s all such a gigantic, egregious yet successful lie that countering it is all but impossible.

February 24, 2014

The economics of homemade Thai Green curry

Filed under: economics — danylmc @ 8:42 am

Dita De Boni suggested in the Herald that the government set up its own chain of supermarkets that, like KiwiBank, introduce competition to a market that doesn’t seem to be working very well.

Matt Nolan hits back against the idea, writing:

Let us think about Progressive vs Foodstuffs a bit here.  If both organisations are thumping around their wholesalers, and the duopoly is competitive (due to the organisations selling a homogeneous product where consumers have good information about prices), then the lower cost for products is PASSED ON TO THE CONSUMER!

If Progressive is bullying, and Foodstuffs isn’t, then Progressive has a lower cost structure than Foodstuffs.  As a result, Progressive can bid down prices, but is likely to keep a large part of the surplus to themselves.  In this case, Foodstuffs is squeezed, and may lose market share, so they have an incentive to bully their wholesalers as well!

If neither firm bullies their wholesalers, they both just charge higher prices, and the consumer pays the difference.

So here is the thing.  We feel bad for the wholesaler being bullied by these big companies – understandably!  However, if we look at the issue more broadly, their bullying activity may well be reducing the price of some goods and services for the consumer.  If we force them to give up their bullying, the consumer then pays a higher price.  There are always trade-offs, let’s at least make a slight attempt to remember that – instead of pretending that government ownership will somehow come in and make everything magically better.

I’d just make one point here which is that its really easy to take a look at the prices at the supermarkets, compare them to competing vendors and see if bullying suppliers does lead to lower prices. And, like I’ve pointed out before, places like farmers markets and green-grocers are consistently way, way, way cheaper than the supermarkets. As an urban-liberal I need a steady supply of lime and coriander and spring-onions and these are usually available at the farmer’s market at around a third of the price the super-markets sell them for.

But, an economist could say: the supermarket adds value because I can buy things other than fruit and vegetables, like, say, coconut milk and and pistachios, and the overheads of building and running a gigantic supermarket are built into that cost. Which is true. But compare the cost of chippies, soft-drinks, chocolate and wine in the super-markets to the cost in your local dairy. It’s usually 100% to 150% more than the supermarket.

So products sourced from small local growers are far more expensive in the supermarket while products sourced from large corporations are a lot cheaper. That suggests to me that (a) suppliers get treated very differently depending on their size and (b) the lower prices being gouged from small, local suppliers aren’t being passed onto the consumer.

January 29, 2014

Something that’s bugged me for a while

Filed under: economics,Politics — danylmc @ 8:38 am

Via the Herald

Labour’s $60-a-week child payment scheme may produce less work and more babies, economists say.

The scheme, announced on Monday, may put some average wage-earners off working more hours because they will lose two-thirds of every extra dollar they earn through a combination of reduced child payments, tax, ACC and KiwiSaver payments.

But Canterbury University economist Dr Eric Crampton said it would also raise New Zealand’s fertility rate.

“Some people will be thinking, can we afford to have another kid, and just deciding at the margin, no we can’t,” he said. “This extra bit could be enough to do it.”

Now, I agree with Eric on this second point. That’s why I think all the rhetoric from people like DPF has been counterproductive for National: its a policy that might give middle-class voters the freedom to have another child and they’re ranting about sluts breeding for cash.

But this stuff about ‘average wage earners’ turning down work because of marginal tax rates etc? Models in which workers make rational decisions based on perfect information and work more/less in response to proposed policy is standard economist stuff and gets trotted out all the time – but how many actually existing jobs in the modern 21st century economy pay wages and let workers set their own hours? Economist lecturers certainly don’t get paid like that. They’re on salaries! And lower income workers who do get paid by the hour tend to work on a ‘whenever the boss tells you to’ basis. I mean, I’m sure there are some wage jobs out there for part-time Mums who get to set their own hours and will make a rational decision to work less because of higher marginal tax rates but I’d like to see some actual stats on whether those jobs even constitute, say, 0.1% of the workforce before we start speculating that it will impact on the entire country’s productivity rate.

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