The visible hand in economics

Archive for December 2008

Dear avid TVHE readers,

We’ve finally set up our own hosting and have a new site  at www.tvhe.co.nz, if you could be so kind as to set your links/bookmarks/feeds to the new web address it would be much appreciated!

We have lots of exciting things planned for the blog in the future (including some new commentators and some tax calculators for you to play with!), we look forward to seeing you there:)

Cheers,

The TVHE team

I see there is some talk of compulsory redundancy payments after this sad story.

Now even though it would be nice if those people hadn’t been left high and dry after all their years of commitment, it is important that we try to get an objective idea about the costs associated with the scheme.
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So we all know that Iceland is bankrupt – what is the situation like for New Zealand?

A few of the stories I saw when Iceland first went into massive trouble were here, here, and here.  At the time the comparison was so popular that there was a Dom Post article on the risks of New Zealand’s current account.

However, I think by now it is obvious that I am not going to agree :P  Our stock of debt is equal to one years income – I don’t see how this is unsustainable!

So tell me – are we heading towards bankruptcy, are we heading towards a bumpy ride, or are we heading towards more “golden weather” :)

I have no doubt that my views here will be contentious – but they need to be put forward nonetheless.

I think that Treasury (or some mix of part of Treasury and IRD) should function at arms length in the same way as the Reserve Bank, and that they should set tax rates in the same way that the RBNZ sets interest rates.

Now, let me discuss why.

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For the NZ Herald cartoonist Guy Body:

toon68

h.t. Nigel Pinkerton.

In what appears to be becoming a “stand up for the Bank” day, I was surprised to see Steve Pierson at the Standard state that he believes the Reserve Bank cut interest rates too late!

Now, if the Reserve Bank had known exactly what was going to happen in the world and decided to hike rates for the hell of it I would agree – but ex-ante they (like the majority of other people) had no idea what was going to happen.

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Yesterday I said that I thought the Bank’s speech on bringing down the price level was ridiculous. Not only is asking for a decline in prices a strange thing for a central bank to do, the mentioning of “oil companies” was slightly off the mark – given that they have slashed prices in the face of falling crude oil (although to be fair the Bank was just asking them to keep going – it was the Dom Post that exaggerated it – or maybe I was being generous!).

Now I am going to defend it.

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