There are lots of different models of business cycles because there are lots of different kinds of business cycles.If a downturn stems from something in the real economy, rather than something messed up on the monetary side or in finance, we need to think about Real Business Cycle models. What are the stylised facts of the current mess, at least for NZ?Massive negative technological shock across a broad range of sectors meaning that existing combinations of labour and capital are far less productive than they once were. Restaurants need more space to accommodate the same number of clients, or fewer clients in the same space. Factories, meatpacking plants, and offices need more spacing between workers. Some of this shock will be temporary – we will eventually get to Alert Level 1. But even

It’s been a long saga, and it isn’t over yet. But the end is in sight. On 12 February, 2019, I put in an OIA request for the data from the polling that IRD had commissioned from Colmar Brunton on tax attitudes. On 12 March, 2019, IRD declined the request on grounds that it would be considered sensitive tax data. I brought the matter to the Ombudsman the next day. But it later turned out that they had ordered the data destroyed. On 1 November, 2019, IRD gave me revised grounds for having refused the request: that the data had been destroyed. I had a chat with the Archivist’s Office about what’s required for that kind of destruction of public records, then went back to the Ombudsman.On 12 March, 2020, the Chief Ombudsman provided a substantial slap to IRD and directed them to get the

Norm Gemmell’s piece over at Newsroom is harsh but fair. Before the Budget, I called for a stimulating, but prudent, Budget. That meant:- moving away from universal, to more targeted, wage subsidies- setting up flexible spending programmes now that respond to needs as they arise- reprioritising spending away from short- and longer-term ‘nice to haves’ to essential recovery support- presenting a credible future debt track beyond the immediate recovery.Pretty reasonable. What did the Budget deliver? Arguably none of the four.Firstly, another two months of universal wage subsidies with slightly stricter conditions (a bigger fall in business revenue) doesn’t make them ‘targeted’. This is despite projections that the economy is already getting back to 80 percent or more of normal working, with

Grant Robertson thinks New Zealand could reopen to international education next year. Robertson said tourism and international education, two of the largest parts of the country’s services sector, were under “real strain”, but potential opportunities regarding international education could arise next year.I hope we’re not missing the boat. North American semesters have August (US) or September (Canada) start dates. Semesters run then until May or June. Students will typically have sorted out their next-year study options well before now, but with Covid on, everything’s up in the air. But waiting until January means missing the cohort of students that lock in to North American options that are harder to exit mid-year. And waiting also misses those students that start looking around to see

The Spinoff asked me for comment ahead of last week’s budget.Here’s some of what I’d told them, hit the link for the rest:The government should have two priorities in this budget. First, and most importantly, the health system needs to be ready for the medium-to-long term changes that the pandemic has forced on the country. Second, the government needs to ensure the temporary measures necessary are in place for all of us to deal with the current mess.Those two priorities lead to one unavoidable consequence. Permanent spending increases – increased spending on matters unrelated to the pandemic that are locked in and hard to reverse – means less room for dealing with the pandemic.Why is that the case? The government will need to take on debt to deal with the current crisis. Tax revenues

Marc Daalder goes through last week’s document dump and plots out the path to lockdown.You need to read the whole thing and subscribe to Newsroom. When Ardern announced the alert level system on March 21, it was met with an immediate outcry by epidemiologists and other health professionals for a move to Level 4.Baker, who had been calling for lockdown for the better part of a week, reiterated his view on RNZ shortly after the announcement. He was convinced New Zealand’s testing wasn’t ready to find the cases out there and also raised a handful of concerns about contact tracing.In the end, it was the contact tracing that would prove the slowest to scale up. A report on contact tracing commissioned by the Ministry of Health from University of Otago infectious diseases expert Ayesha Verrall

The evening closing of the browser tabs brings the following worthies:Farah Hancock at Newsroom continues to push the government for more detail on the Covid cases. This stuff is important. More voluntary initiatives to get PPE to the front lines: 3D-printed face shields. Tyler Cowen lays out just what a mess American universities are looking at for the coming year, predicting a fair few families will opt for a gap year. If we could get quarantine sorted out, NZ could put on a credible alternative. Any sane version of pandemic rules would have aged care facilities protected against entry of Covid. Meanwhile, in the UK, Councils are withholding funding from care homes refusing to take in Covid patients. Danyl McLaughlin writes in defence of Covid-19 contrarians.I trust the prime minister a

My column in Newsroom this week ($) suggests that the government might look to some of its own necessary infrastructure upgrades, particularly around back end servers. We could be getting so much better and more timely data on what’s all going on. A snippet:More timely data is possible. But it would require unclogging the pipe running from Inland Revenue to Statistics New Zealand.Income tax in New Zealand is delightfully simple. The Pay As You Earn (PAYE) system has firms submit income tax to IRD on workers’ behalf, rather than the workers themselves.It has an additional advantage. Inland Revenue is receiving daily updates on the state of the economy. Every day, IRD receives PAYE from companies on behalf of workers across the country. It knows which companies are sending in payments on

Just imagine being the kind of person who frets about porn consumption during lockdown.
The Herald has this fun bit from Friday’s document dump:

Massive spike in porn and online harmThe day New Zealand went into lockdown, there was a massive spike in PornHub’s traffic.In a briefing on online harms from the Minister for Internal Affairs Tracey Martin, a graph from Pornhub showed a 20.6 per cent increase in their New Zealand traffic when the country moved to alert level 4 on March 25.It dropped back to 4.8 per cent increase by March 29 but then crept back up to 15.8 per cent on April 2.

My column from last week’s Insights newsletter. 

There’s an old short-handled shovel hanging in our garden shed. The plastic handle has split, but the blade and shaft are fine. With a bit of work, that shovel could again be shovel-ready. But it isn’t just yet.This past week brought news stories that really should have been tied together. The Government is readying changes to the Resource Management Act to fast-track shovel-ready megaprojects in the Government’s preferred priority areas. Meanwhile, contractors have been digging up and re-building the same bits of Transmission Gully for some time. Nobody knows when it will end.Together, the stories remind me of that old shovel in the back shed. If even a half-built road isn’t really shovel-ready, what hope is there for the rest of the

The closing of the browser tabs brings a few worthies:Andrew Gelman goes through the paper that had claimed to show that cities with a stronger response to the 1919 flu had subsequently stronger economic growth – it looks rather like the data doesn’t show much.
What do you do if you’re convinced that the rest of the world is getting something important seriously wrong and that shouting about it now won’t do much? Put it up in hashed form so you can counter "nobody could have known" later.
I have heard two separate and independent accounts of very bad use of the government’s requisitioning powers. I’ve put out OIA requests about the use of those requisitioning powers to Civil Defence, MoH, and the DHBs. I’ll let you know what I hear back. 
From the "things very likely to be inframarginal"

Lockdown wasn’t a failure; it was a symptom of a failure.

From where we were at when the government shut the country down, they had to do it.But we didn’t have to be in that position at all.The Herald’s been going through the Friday afternoon document dump and caught this one.
Contact-tracing capacity has repeatedly been referred to as a weak point in New Zealand’s Covid-19 response and has been ramped up in recent weeks to a point where director general of health Ashley Bloomfield now refers to it as a "gold standard" system.But on March 17, a document proactively released by the Health Ministry put the capacity at the time as "estimated at 10 active cases".That morning the Covid-19 case count was 11 confirmed cases and two probable cases.The paper said that the capacity needed to be

When we lived in Christchurch, we’d tour occasionally out to Quail Island. Quail Island had been home to New Zealand’s leper colony, and also served more generally for quarantine. Here’s a bit of that history.

Although most migrants arrived fit and well, the authorities implemented disease prevention measures at the major ports. Before anyone disembarked, officials checked the health of the government migrants and the condition of the ship, and heard complaints. Ships with sick people aboard had to raise the yellow flag and go into quarantine, a dismal introduction to the New World for people who had already been cooped up for three to five uncomfortable months at sea.Construction started before the island’s sale could be completed, so the government built cheaply and simply. In

The line between state-owned and ‘private’ firms starts getting messy in bailout-worlds. 

AUT’s excellent Akshaya Kamalnath provides an interesting example with the bailout conditions on Air France – KLM.
There’s much to say on the topic of airline bailouts unfortunately. Today’s post is about Air France-KLM and the strings its bailout comes with. (My previous posts on this are here and here.)Apparently the French government will make a loan of £6.15bn to the airline on the condition that it scraps domestic air routes. The stated motivation for this is environmental do-goodery. Bruno Le Maire, the economy minister, provided the following reasoning: “When you can travel by train in less than two and a half hours, there is no justification for taking a plane.”We talk about conflicts of

The draft cannabis legislation, as written, is better than prohibition. Even without amendment, those inclined to vote should vote for it.There’s still a lot in it that I don’t like though.The prohibition on growers also running retail operations, presumably intended to prevent large commercial grow operations with vertically integrated retailers, will also prevent anyone from running the kinds of cellar-door operations that have been very important in wine tourism.Sure, cannabis is nothing like wine. But is it that hard to imagine folks spending a morning at a grower’s in Northland, seeing he fields, meeting the growers and workers, touring the facilities, sampling some of the product , having a bit of lunch maybe with a nice wine, ordering some for delivery back home, then bicycling

The government’s paid $50m to help shore up newsmedia companies’ finances during Covid.

But the overall media funding problem is bigger than the current Covid mess.

I went through things in a bit more detail in Newsroom last week (ungated here). Too many news types want to find ways to have the government strongarm tech companies into rebuilding the old advertising-based funding model that worked until the 2000s – it’s basically nostalgia for an era that just won’t come back.

But where we wouldn’t see any need to support buggywhip manufacturers against the rise of the car, there are reasons to expect the optimal amount of journalism is higher than we might wind up with where the personal benefits of being informed aren’t all that high. 

I talked about it all with Jesse

Statistics New Zealand’s Household Living Costs Index again points to tobacco excise as imposing substantial cost:

Māori and beneficiary households feel the greatest impact from higher cigarette prices
30 April 2020, 10:45amHigher cigarette and tobacco prices hit Māori and beneficiary households the most in the March 2020 quarter, Stats NZ said today.Each quarter, the household living-costs price indexes calculate how inflation affects different groups in society, while the consumers price index (CPI) measures price changes for New Zealanders as one group.Prices for cigarettes and tobacco rose 11 percent in the CPI this quarter as the annual tobacco tax rise took effect on 1 January (see Higher inflation in March quarter).“The cost of cigarettes and tobacco was one key contributor to

It certainly can’t work for everyone, but I wonder how many companies will be finding that they didn’t really need nearly as much office space after all. 

Software firm OpenText is permanently closing about half of its offices and shedding up to five per cent of its workforce as it responds to the COVID-19 pandemic."We believe it is better to be decisive and clear, not slow and incremental," chief executive officer Mark J. Barrenechea said during an earnings call on Thursday afternoon.A shift to remote work by more than 95 per cent of OpenText employees as the pandemic spread has been "amazingly productive" and as a result, approximately half of its physical offices around the world will not reopen, Barrenechea said.Those offices are smaller and house about 15 per cent of OpenText’s

New Zealand’s today hit zero new cases of Covid-19.

With appropriate upscaling of contact tracing and rigorous quarantining of newly found cases, it’s very possible to see New Zealand largely reopening, at least internally.The rest of the world remains a problem.And, sadly, a bit of an opportunity.New Zealand could wind up being the only place in the world where you can undertake normal university study with lectures and student life.That presents an enormous opportunity to expand international education. Incoming students would need testing and quarantine, and the system for doing that would have to be rigourous – no stupidity like jumping onto regional flights with other passengers from an inbound international flight. Doing it properly matters.Reopening to foreign students doesn’t

The third column in our Insights newsletter is usually a little tongue-in-cheek.

I’m not entirely kidding about this proposal for supporting the media though. But first, a bit of back-story. 

The basic problem, as I see it, is that there is very little real demand for actual news. That by itself wouldn’t be a problem, but there are reasonable social benefits from a better informed public. For one thing, a better informed public will do a better job in voting. And when an investigative journalist finds things like, say, a town councillor used a tip-off about a zoning decision to make some land investments – well, that stuff getting found out and published encourages better behaviour.

For a long period, we were in the happy spot where people were very happy to pay for classified

Newsroom’s co-editor wants the government to shake down Facebook for a hundred million dollars to give to newsmedia, under threat that the government would impose worse regulations on Facebook if it didn’t pony up the dough.I’m not exaggerating.Here’s what Mark Jennings wrote:

The best thing the Government could do to help New Zealand media right now is to get the Prime Minister on a Zoom call with Facebook boss Mark Zuckerberg and ask him for $100 million.
In return for saving the New Zealand media, she agrees to let Zuckerberg off the hook that the Australian, French and other governments are planning to put him on by making Facebook pay for news content.
I know that things are pretty tough in the newsrooms, but asking the government to run a shakedown operation to fund you is not all

New Zealand’s public health system has pivoted admirably to focus on the current pandemic. But the neglect of communicable disease for rather a long time ahead of this has had costs.The public health system’s focus on noncommunicable disease may make sense if you only look at the current burden of disease, prior to this year. But contagious and noncommunicable disease are very different things. If I decide to live an unhealthy lifestyle and have worse health as consequence, the costs of that to others are not particularly high. There is a fiscal transfer through the public health system, but that is mostly pecuniary – unless you think that people are living substantially less healthy lives because they know that the system will cover the health costs down the track. But any real,

Eloise Gibson over in the Dom Post rounds up comment on climate priorities as we come through the Covid-19 mess.I suggested pushing harder and faster on getting the ETS into proper order; Eloise briefly covers my comments there. I’ll expand on them here.So much in this space seems to get things backwards. Let’s work it forwards first, then show the problems we get in thinking backwards.A properly working ETS will set a binding path to hitting NZ’s commitments, but with one fudge that I’ll add in here. The fudge is that prices in New Zealand should never lead prices in other countries that are taking climate seriously.There are two ways of getting that.One way is making sure the ETS can handle international tradeability in real and credible carbon permits. If you have that, then NZ

Coming out of the mess will be easier where labour markets are less rigid. People will need to be able to shift to the areas seeing increased demand – both geographically and by industry sector. 

At least in the US, occupational licensing regulation makes that hard. If you’re certified by one state’s board, you may not be recognised by the next state over.Much of that licensing was never really necessary. But it’s even less necessary where there are better feedback mechanisms providing information about service quality.Sara Brown summarises work from Brynjolfsson and coauthors: (HT: R.S.)
More than 1,100 occupations, from interior designers to contractors, require licenses in at least one U.S. state. But consumers care more about online reviews and prices than license status when it

In the Stuff newspapers this week, I laud New Zealand’s maintained commitment to free trade in critical goods. 
Back in March, Canada, Australia, Chile, Brunei and Myanmar signed on with NZ and Singapore to a statement endorsing keeping supply chains open and removing restrictive measures on essential goods.Last week, Singapore and New Zealand fleshed out what that means for them, with a list of a pile of products that will be moving to tariff-free status. It’s an open plurilateral agreement: any other country who wants to join is is free to sign up by agreeing to the what’s in the agreement as written.I really hope other countries join in.A snippet:
As New Zealand increasingly and deservedly draws the international spotlight, Prime Minister Jacinda Ardern could do well in asking other

The worthies on the culling of the browser tabs:The Adam Smith Institute reminds the UK government it needs a plan for exiting lockdown.
The Atlantic, on how the WHO failed, but why defunding it may not be the best response.
William Nordhaus on the need for a Climate Club: basically, the Club consists of countries willing to commit to carbon prices hitting no less than agreed targets, and carbon-equivalent tariffs on imports from outside of the Club. He suggests it may be too hard to run full carbon-equivalent tariffing and that the Club might instead set a uniform tariff on all imports from non-members. I wonder whether that could really pan out – the US would be unlikely to join, and very likely to impose its own retaliatory tariffs on the Club. 
I would have thought that the current

On 24 February, New Zealand’s Health Research Council announced that up to $3m would be available for Covid-19 research.

We’re pleased to announce up to $3 million in funding will be made available for a range of research projects to address the current COVID-19 threat as well as future infectious diseases. @minhealthnz @SunnyCollings https://t.co/6wSNVyLmsD
— HRC New Zealand (@HRCNewZealand) February 24, 2020
The Spinoff reported on Friday 17 April that they’ve awarded $3.8 million to 13 studies.

Nearly half the funding (around $1.3m) has been allocated to studies investigating possible treatments for Covid-19.
One, the Australasian Covid-19 Trial (ASCOT) lead by Middlemore Clinical Trials, will assess how effective two antivirals (lopinavir/ritonavir and hydroxychloroquine) are in

Tony Burton makes an interesting point over at The Spinoff.When we’re thinking about paying for all of this mess, should we be running the benefit principle somewhere in the back of our minds?The benefit principle of taxation says that the burden of paying for something should, where possible, fall on the beneficiaries of it.
These are the kind of extraordinary times when the government might consider extraordinary responses. Will they recognise the main beneficiaries of the lockdown are over-65s and revisit a capital gains tax or consider a surcharge on New Zealand Superannuation? Both would more evenly distribute the financial costs among generations. Given New Zealand First is in the coalition, and will be implacably opposed to anything touching superannuation, the government is more

New Zealand’s new Parliamentary arrangement, with the Leader of the Opposition chairing a committee that holds the Executive to account while bringing in expert advice, has been superb. It’s been great in actually getting answers.

But I’m still none the wiser on how and whether New Zealand will be able to scale up contact tracing to the levels needed.

Looking through the course requirements and learning outcomes for the public health papers at Otago, contact tracing seems a bit like cost-benefit assessment in economics: something that people have to wind up learning on the job, because it’s only really mentioned at a high level in courses. When I taught at Canterbury, the closest we ever came to teaching what actually goes into the CBA sausage was a single week of my elective Econ

Forestry Minister Shane Jones has been arguing for export controls on logs. That seems a terrible idea, with risks beyond forestry. A snippet from my column in Newsroom this week (ungated):

BusinessDesk last week reported that Jones is considering levies on log exports to fund some kind of “re-setting” of local industry, or a variety of regulations to ensure domestic lumber processors have their needs met before logs are exported.The story noted how local lumber processors are struggling to compete with processors elsewhere when international prices for logs are high. Jones viewed protections were necessary to ensure a viable domestic log processing sector in New Zealand.But it’s worth explicitly stating what that means. Jones, as Minister, would effectively be setting a price cap on