Savings rate quartiles by income decile

An interesting chart from the Tax Working Group’s interim report:

According to this data, the median savings rate is only positive for households earning more than $81,000 after tax per annum.

The lower quartile savings rate only begins to become positive for the top decile earning more than $139,000 after tax.

The bottom 25% of households earning $112,000 to $139,000 after tax per annum have a savings rate of -2% even at the 9th decile of unequivalised household income.

It would be interesting to see a more granular break down of this data on an equivalised basis if possible. 

One of the more interesting submissions to the Tax Working Group was that of fund manager Milford Asset Management. They included this comparison of national savings rates across major countries:

Nothing good comes from being a net importer of capital from overseas with enormous population increases but no real per capita gains. 

If the only households doing any substantial saving are in the higher income deciles, and those on lower after tax incomes are dissaving significantly, then what is really behind that?

Maximising consumption over one’s lifetime through borrowing when young, repaying debt and saving as you age, to run down capital in retirement, may perhaps explain what is going on here. 

But no matter what is behind the lack of saving – lower incomes, higher cost of living, house prices and rent – the fact it isn’t happening for vast numbers of households accompanied by a substantial increase in household debt doesn’t bode well for the future.

Why would Christchurch want to waste money on a stadium?

Over at Newsroom there’s an article looking at the fact Christchurch has decided to use $220 million of the money the government gave to it for infrastructure projects to build a stadium.

It’s a real shame that hundreds of millions of taxpayer and ratepayer dollars keep getting shovelled into projects that really struggle to break-even, let alone generate a reasonable economic return.

I’d recommend having a look at Eric Crampton’s series of posts, over many years, looking at some of the evidence around why this may be a bad idea. 

The fact that politicians can engage in this sort of nonsense when there are far deeper problems still at play in Christchurch post-quake particularly around insurance, construction and EQC, shouldn’t be too unsurprising but it still hurts to see things like this happen time and time again.

When the Newsroom article highlights that only 20% of locals are happy with the state of the roads in Christchurch, perhaps there are higher priorities than sportsball shrines. 

Can regional economic development really happen?

Can regional economic development really happen? I’m not sure it can.  Building stuff increases nominal GDP. But does it increase real GDP per capita?

Perhaps, but there are no guarantees. There are zombie towns in New Zealand today. They are struggling despite a “rock star economy” the previous government claims to have left to the new government.

There is a reason why people and capital have been leaving the regions. Big cities attract young people. Big cities have agglomeration effects. Growth happens in big cities. Productivity is higher in big cities. But New Zealand’s big cities aren’t that complex or productive.

We have small cities in New Zealand. They’re not as productive as big cities in other countries. Maybe economic geography and distance from trading partners and rising population over a low base of natural resources to begin with can help explain our low productivity growth over the past 50 years.

If there’s any lesson from our history, it’s that there will be more zombie towns in our future. Social capital matters. Very few people will actually sell their house in Auckland and move to the regions. Even fewer will create creative, high value add businesses from the provinces.

The lack of ambition that is implicit in the idea that 1 billion trees can save the poorer parts of New Zealand should be pretty clear. Don’t we want more for our citizens?




The Glass Ceiling of Inequality

Inequality is a hot topic. It always will be. The glass ceiling of inequality is the idea that most families will spend whatever it takes on their kids.

The left have a great idea that you can give all kids equal opportunities. It’s just fantasy and ignorant of reality. The ability to identify and participate in valuable opportunities just isn’t equal.

Things that you think don’t matter might in fact drive your life outcomes. How you speak, how you dress, and how you interact with everyone you meet. There is no level playing field.

Your own hard work and industry still matters. But imagine how hard it must be for people already facing discrimination.

Attribution Error

When people win, they think its because of their hard work. They may have worked hard, but if they lose they’re highly likely to blame others or bad luck.

Attribution error is the phenomena where all my wins are mine but all my losses are the fault of others. There was a great example the other day when someone who went to Geelong Grammar claimed he had received no advantages in life.

The Arms Race

The glass ceiling of inequality was only successfully deconstructed during the Russian Revolution. Hence it’d be stupid to think that breaking it down would be a good idea.

Whatever government policy attempts to reduce inequality, another silent requirement will arise to perpetuate the same group of people getting ahead.

Why do so many institutions care about “well rounded” applicants? Because it helps them select people who are like them.

People like them – this means other kids who were over-scheduled, perhaps attended the same school and self-actualised from birth through volunteering and sport.

More people will take advantage of “free” tertiary education, but the exact cohort of people who make it through their degrees and into the sorts of jobs that justified that investment is unlikely to change much.

How many poor kids whose real problem is the living costs not the student loan balance at the end will partially complete a qualification and earn barely any labour market premium?

Look at inequality in the housing market in terms of which types of first home buyers are buying houses to really keep digging into what the glass ceiling means in practice.


Is Picking Winners With Subsidies Efficient?

Is picking winners with subsidies efficient? Any review of either the literature or the evidence would you you in the direction of answering no to that question.

It’s not really plausible to argue that it’s efficient in the economic sense of the word. If people are employed at their highest valued use, will they be working in the public sector, picking winners with taxpayers money?

To ask the question is to admit that there are perhaps 100 to 200 people in venture capital firms on Sand Hill Road who are world-class at venture capital investment selection.

It might however be a way of achieving a political goal – add jobs, subtract competition, deliver votes, repay political favours, or something of that nature.

To dress up what is a political device in the language of economics or finance, using words like “investment” is an abuse of the English language.

It really is dissembling to suggest that if one company gets something from taxpayers and another does not, that there does not exist a state of affairs where the state has favoured one company over the other.

Structural reforms in the 1980’s delivered substantial gains for New Zealand in many areas, while incurring some very real social costs that have not fully been appreciated by those for whom that experience is alien from their day-to-day reality in policymaking bubbles.

But it seems that some sections of those structural reforms have been rolled back quietly over a long period of time by different governments in the guise of picking winners through subsidies, investments and free hits built into regulatory regimes.

It’s not clear what the overall strategy of the state is, nor are there any clear intellectual arguments in favour of such a selective application of state assistance for one part of the economy but outright disavowal of the idea that the state can provide assistance for other policy problems.

Is cognitive dissonance and no coherent strategy the new normal?


The Irony of Post-GFC New Zealand

The irony of post-GFC New Zealand is that a Keynesian fiscal stimulus characterised by enormous levels of deficit spending and infrastructure spending has driven a reduction in unemployment in the context of a low interest rate world that has not triggered that much inflation outside of clearly politically highly-regulated areas like housing, education and healthcare.

Despite the media focus on inequality, that’s not really connecting with many “average New Zealanders” because an awful lot of them have made some quite tidy capital gains on their houses and are doing alright as evidenced by retail spending and record high new auto sales.

Plummeting per-capita GDP growth and abysmal overall productivity rates that simply attract rationalisations and “smoke and mirrors” style explanations should be the perfect opportunity for a Loyal Opposition to hold a government to account.

Labour has failed totally to achieve anything concrete in its years in opposition whilst simultaneously drifting further and further away from things that the “average New Zealander” or “median voter” cares about.

I wouldn’t be surprised if a 5th term is on the cards for National, let alone an almost assured victory next year for John Key, a reflection on his sensible approach to government and perhaps greatest example of incrementalism in New Zealand history.

Having spent a bit of time this year interacting with people outside of my Wellington bubble, it’s clear that John Key will be able to deftly defuse any attempt to reclaim the centre. There is no credible alternative government and it’s debatable whether any of the populist style reaction observed in Britain with Brexit and the United States with the election of Donald Trump will water down his ability to form a government.

I’m skeptical that NZ First will expand its share of the party vote much more – Winston Peters may be kingmaker indeed but I wouldn’t be surprised if National starts releasing policy that cuts into his traditional market! Interesting times in New Zealand for sure, focus on family and friends and stop buying into the idea that politics will be able to solve anything anytime soon when so many young people don’t even bother to vote.

Alan Greenspan book explored on Alphachat

FT Alphachat is a really good podcast – you can get it on iTunes. They recently interviewed Sebastian Mallaby, the author who wrote “The Man Who Knew”, one of the most thoroughly researched books on former Federal Reserve chairman Alan Greenspan.

Some brief thoughts:

  • Greenspan’s intellectual and personal journey over the course of his life is fascinating, his involvement with Ayn Rand and the Nixon campaign as a polling analyst and effectively a key campaign operative close to the likes of Pat Buchanan particularly so. I wonder how his internal dialogue changed over the years given he was essentially active at the highest level of economic thinking from the 1950’s through to the mid 2000’s.
  • Alan Greenspan’s thesis basically argued that central bank inability to respond promptly to asset price bubbles was an argument for a return to a gold standard – i.e arguing against the idea of central bank controlling inflation through monetary policy. He also understood the clear links between investment and consumption through firm and household responses to changes in asset prices i.e. the wealth effect. I wonder how he looks back on all of the booms and busts he observed and whether he’d change how he reacted in the moment. Was keeping interest rates low really the biggest deal? Was the GFC really inevitable? What about the global savings glut theories?


What can local government really achieve?

What can local government really achieve? Not much, if their collective track record around New Zealand is anything to go by.

Local body elections are an interesting political exercise. Voter turnout is quite low, and the most likely voters are ratepayers – older, wealthier.

There’s no doubt that the decisions local government makes are really important for productivity growth. But they’re so constrained by central government.

Some local government functions should probably be amalgamated into national functions with far lower levels of discretion in terms of policy making enforced.

Local government can make a difference, but there are so many constraints placed on them, what is the cost of having a severely constrained junior partner that just gets blamed for problems when central government has just as much culpability?

How does society benefit if you have two levels of government pointing the finger at each other instead of working collaboratively to solve problems and deliver actual solutions instead of long term plans that will take decades to implement and still rely on numerous stakeholders sticking to the plan for the duration?

A Median Voter Refresher

The median is the middle value, the 50th percentile of a distribution. The median voter model is the idea that people will elect governments whose policies reflect those approved by the median voter.

This is why the phenomena of middle class welfare is so commonplace around the world – the mortgage interest tax deduction in the United States, interest free student loans in New Zealand or tax free savings accounts in the United Kingdom. It gets you votes and keeps you in government.

People who want to be elected don’t often get to talk about what they really believe in. They assemble a package of policies that won’t rock the boat. Incrementalism rules the day, and the policies preferred by the median voter have moved further and further to the left over the course of the past few hundred years so this is why you see many parties like National propose things in 2016 that would have their caucus revolt 20 years ago.

The fact that reactionary or conservative movements are on the wrong side of history is often missed by liberals or progressives. They forget that conservatism has nothing to offer under the onslaught of continual policy concessions in the face of people questioning why certain “sacred truths” must be respected anymore – witness the collapse of the Republican establishment in the United States in the face of a reality television candidate spouting things that are actually not far from the beliefs median voters in many parts of the United States suffering from political ignorance or anti-foreign bias genuinely believe!

It is amusing that Andrew Little dismissed Helen Clark’s comments the other week about appealing to the centre in New Zealand politics because most New Zealanders are middle of the road sorts of people. Talking about a coalition of constituencies is fascinating because it highlights how he is clearly surrounded by advisers who think he is a South Pacific Sanders i.e they are completely out of touch and unable to communicate clearly with the people they need to in order to sell a potential replacement government.

John Key has demonstrated with his support of Helen Clark’s unsuccessful campaign for UN Secretary General that he, and his advisers, are far more sophisticated in their understanding of the New Zealand electorate and what matters to swing voters across the country. New Zealand’s political class doesn’t really interact with many people outside of their bubble.

John Key can get away with saying he meets a broad cross-section of people at Koru Lounges because relative to many other politicians he is far more in tune with the mood of the country than perhaps any previous Prime Minister.

Danyl at Dim Post hit the nail on the head with this quote:

It’s conventional wisdom on the left that Key et al are morons, and the left is morally and intellectually superior, and I’m not sure how this squares with Key and his party constantly doing very smart things, and the left’s parties and leaders mostly, consistently being pretty dumb

This can all be reconciled with the median voter model. The left clearly cannot be “intellectually superior” because they are losing. And losing really badly, and for good reason. A lot may have gone wrong in the past few years in New Zealand, but an awful lot has gone right, and pragmatic incrementalism has helped that outcome.

Other millennials should have figured out by now that the median voter is also a home owner, so don’t expect any action on housing affordability until New Zealand is perhaps 70% renter households and it makes sense under a median voter model to propose those sorts of policies!

New apartments on Gilmer Terrace?

A 24 hour a day concierge service, and a doorman who knows everyone’s name.

Former Museum Art Hotel owner Chris Parkin is planning to transform a high-rise office building in Wellington into a “sophisticated” apartment block.


There is a dearth of apartments in central Wellington. The more that are built over the next decade the better. It is quite unfortunate that several otherwise nice buildings have a reputation as “party buildings” and are thus unsuitable for professionals seeking relatively quieter neighbours or young families.

When you walk around the Wellington CBD, particularly south of say, Dixon St, it really is amazing how low the levels of intensification are. There are many well integrated retail/residential buildings, 3-6 stories high, but so many light industrial and single storey retail buildings within the flat land of the city, that it couldn’t be clearer that one of the reasons so many people struggle to find suitable accomodation is that there really is nothing much that has been built.

When you add in the non-trivial number of young people and young couples earning decent incomes, it’s clear that there are some supply-side issues with Wellington Central accomodation.