Rock Star Economy 2014

HSBC economist Paul Bloxham has been doing the rounds saying New Zealand is on track to be a Rock Star Economy in 2014. What does this mean?

Well, unemployment is falling, businesses are investing more, wages are growing and the minimum wage is still going up automatically at a rate higher than underlying productivity growth for low skill workers.

Our terms of trade are increasing significantly which means cool stuff which isn’t made in New Zealand is easier to buy. It also means that imported inputs for high value add production processes are cheaper.

What happens if the NZD reaches parity with the AUD? Manufacturers will hurt. But if they’re actually hurt by currency fluctuations to the point where they earn no profits and are depleting capital to stay in business, it’s time to call in the liquidators.

Manufacturing firms have faced a floating exchange rate since 1984. They have had every opportunity to invest in better business processes, staff training, automation or simply building a world class product that is priced to maximise value extraction and not on a 19th century “cost plus” dumb bugger pricing strategy.

So a key part of the rock star economy will be creative destruction of firms that have failed to get with the 21st century. This obviously includes a lot of SMEs that still don’t have websites or respond to emails requesting quotes promptly.

When it comes to telling macroeconomic stories, prediction is impossible, anything could happen, but we should bear in mind that the negative stories are more believable because they are rooted in fear.

So instead of moaning about things and why the system is evil, identify opportunities and take advantage of them. They exist, they are there for the taking and they won’t stop arising because of a change of government.

Economic Communication To The Public At Large On Monetary Policy

The Green Party leader Russel Norman has wandered into monetary policy again.

This press release has so much derp it is disturbing that this man could be a key figure in a coalition government that would fetishise manufacturing.

We know that forecasting is nigh on impossible.

We also know that over time, the Reserve Bank’s inflation targeting policy has led to price stability in areas where there are not crazy supply side restrictions like housing.

Furthermore, we also know that pretty much no one understands what the Reserve Bank of New Zealand actually does, how the banks actually fund their balance sheets and why foreign exchange volatility is a good thing in terms of rapid adjustments in response to adverse shocks.

I think that because Russel Norman is engaging in so much derp, it would not be inappropriate for a senior Reserve Bank staffer to be seconded to his office until the next election.

It really is the level of derp that could damage central bank independence and set the New Zealand economy on a path away from the silent recovery.

While the Governor has full accountability for the Official Cash Rate decision, there are more than 1 employees at the Reserve Bank last time I checked.

Economic communication to the public at large on monetary policy must be crystal clear. The influence of derp must be stopped at all costs. I mean, surely there is a Green-leaning economist in Wellington who can calmly educate Russel Norman on second-order effects of monetary policy derp?