Today's Top 10 is a guest post from Shamubeel Eaqub, the principal economist at the New Zealand Institute of Economic Research and a blogger at www.tvhe.co.nz. This is his third Top 10 in our Friday guest series. You can see his last Top 10 here.
As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz. And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.
See all previous Top 10s here.
1. Et tu El Nino?
Even though the world hasn’t warmed much in the last few years, weather patterns are erratic. A strengthening El Nino system may have widespread impact on agriculture:
- Almond growing in California – according to MarketWatch
- Potato and sugar production in India – according to India Times
- Dairy and meat production in New Zealand – see how unusually dry it is on the NIWA website.
2. Dr Copper getting worried?
Copper prices can be a good indicator of global economic conditions, because it is a key commodity in many manufactured products. Peter Brandt blogs on his technical analysis of copper price movements.
But there are disagreements on what copper prices actually show. The Australian follows up with copper comes a cropper. In recent years copper was becoming increasingly used as collateral for financial in China. Copper may now be the indicator to watch for China’s financial market health:
So if there is a credit sobering-up in China, this will have an impact on the use of copper as financing collateral; if that business dries up, a very large copper surplus will suddenly be revealed.
3. Developers were hit by the GFC
It may seem obvious, but it was interesting to see some well researched information on capital issues for property development. The AHURI report concludes:
While some larger developers (e.g. Australian Real Estate Investment Trusts) have adequate access to finance, small to medium sized developers have faced difficulties especially since the global financial crisis. This has negatively impacted housing supply especially in-fill development.
The same drivers have been in play in New Zealand too. The low level of house building in recent years has been mainly in reduced greenfield developments, particularly in South Auckland.
4. ECB’s masterly inactivity
The Economist writes about the ECB’s inaction, despite slowing inflation and stagnant economic activity:
It is not after all as if the ECB is exactly sitting on its hands in Frankfurt. In its new capacity as single supervisor (a job it takes over formally in November) it is pulling out all the stops to diagnose the health of euro-zone banks and to ensure that the necessary treatment is administered. But in the more familiar realm of monetary policy, the ECB is pursuing a strategy of masterly inactivity.
Central banks are increasingly doing more than just setting monetary policy through interest rates. Now they are looking much broader, including fine judgements on recovery from a once-in-a-generation recession/stagnation and financial system health. Only time will tell how successful they have been.
5. LVR blamed, but how do they know?
Various press articles blame the LVR restrictions, which limit high LVR mortgages to 10% of new lending, on the state of the housing market:
QV: “a clear indication LVR caps are having a downward effect on the rate of value growth in the property market.”
ASB: “It seems that the introduction of the LVR restrictions in October may have created hesitation among both buyers and sellers.”
ANZ: “the evidence is that LVR lending limits have had a marked impact”
Looking at the growth in mortgage approvals below, a pretty convincing story could also be that the momentum has been slowing since mid-2012. If the LVR restrictions weren’t highlighted in the chart below, would you know? I would side with the REINZ’s assessment quoted in the ODT:
Several issues, including seasonal factors and the ongoing LVR impact, meant it was difficult to get an entirely clear steer on the direction of the January market.
6. Inequality and where you live
The Washington Post has a nice blog highlighting the varying performance of regions. Citing a Brookings Institution report they highlights that:
Larger, more dynamic cities – think New York, San Francisco and DC – are more unequal than their smaller, less economically-diverse counterparts. As it turns out, a rising tide doesn’t necessarily lift all boats.
NZIER replicated a similar analysis for New Zealand using the latest Statistics New Zealand Census data. It shows the income of the top 70th percent, median and bottom 20th percent.
The most unequal regions are Auckland and Wellington. Tasman may be the most equal region in New Zealand, but it is equally low paid. The inequality in Auckland and Wellington may reflection their composition – they have opportunities for highly skilled and paid jobs that other places do not. This highlights that the worthwhile conversation on inequality has many dimensions – and a regional lens may ask different questions.
7. Redistribution need not cost growth
The IMF’s paper “Redistribution, inequality, and growth” concludes:
... we should be careful not to assume that there is a big tradeoff between redistribution and growth.
Matt Nolan has a thoughtful blog on this paper at TVHE. It is easy to lean on the IMF paper and say that we should redistribute more. But Matt reminds us that:
policy is complicated, our knowledge is partial and conditional, and as a result when it comes to policy we need to work hard to understand the impact of policy. The report didn’t say we should go from one oversimplification to another one.
And Sendhil Mullainathan, a Harvard Professor, warns in the NY Times that outrage at the top 1% may be distracting us from the difficult business of fixing the complexities of life for the bottom 20%.
... if our goal is to fix the problems of the bottom 20 percent, we should weigh all these concerns. We should study the empirical evidence and coldheartedly understand which tax rates and policies will raise the most revenue. That’s what will help achieve our goal. We must be passionate about our objectives, but dispassionate about the means. And taxing the rich is merely a means, not an objective.
8. Rhetoric versus reality of government balances
The Washington Post shows a chart of US government revenue and spending since 1930. It shows that the US government has typically run deficits and that
... the recent reduction of the deficit has come primarily due to spending cuts instead of revenue increases.
A similar long run chart for New Zealand below shows that the improvement in recent years has been due to more controlled spending (the spike was spending allocated to the Canterbury earthquakes).
The general election in September will see a plethora of policy announcements from political parties, tempted by looming fiscal surpluses.
9. A proper discussion on immigration
The New Statesman’s tongue-in-cheek op-ed on how young people are taking all the jobs, is a counter to a rising anti-immigration tide. He asks:
Can I tell you about the new arrivals who really scare me?
Young people. There are loads of the baby-faced little sods, all of whom got here more than a decade after I did, and they’re everywhere.
A more thoughtful piece by Paul Collier also in the New Statesman (author of Exodus) is titled “How to have a sensible conversation about immigration”. In my view, we are embarrassed to have a sensible discussion about immigration in New Zealand. The conversation is polarising. Paul Collier doesn’t shy away from putting forward both the positives and the negatives of immigration and suggests:
... the composition of migration matters more than its rate. Migrants are more beneficial if they are skilled and employable. Whereas skill can be assessed by a points system, employability can only be assessed by employers and so a sensible requirement is that migrants should already have a job offer. Existing migrants want to bring in their dependants. This occupies migration slots that could otherwise have been occupied by skilled workers; it is likely to slow the rate at which diasporas absorb into mainstream society and increases the burden on welfare systems.
10. When is an exchange rate not an exchange rate?
NZIER wrote a short piece highlighting that our trade patterns have changed so much in recent years that we can't really think about “the” exchange rate anymore:
Summary exchange rate measures are useful. But they now need to be broadened to include emerging markets like China and services trade. When we talk about the impact of “the” exchange rate on particular industries, it is better that we use an exchange rate that reflects modern exporting patterns. Otherwise we risk misunderstanding the impact of the exchange rate on the economy and unwittingly initiating policies that may not be addressing real problems in the New Zealand economy.
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2 Comments
#1 The world (for the first time in a few years) is on El Nino watch (est. 50/50 chance this year) likely affects- California getting some actual rain, New Zealand getting cooler drier conditions (so keep an eye out for East Coast droughts).
#5 there is a fairly resonable relationship between number of mortgages and number of houses sold, and a pretty poor relationship between aggregate value of mortgage approvals and house prices. And I would argue the relationship has gotten worse over time. Make of that what you will.
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