In the last few weeks my colleagues, Gareth Kiernan and Adolf Stroombergen, have discussed the importance of what economists call allocative efficiency – ensuring that the nation’s resources flow into those activities where they are most valued. I continue with that theme. My aim is to present a measure of how big a deal allocative efficiency is for the New Zealand economy.
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Last week my colleague Gareth Kiernan discussed the importance of what economists call allocative efficiency – ensuring that the nation’s resources can flow into those activities where they are most valued. A pre-requisite to achieving such an outcome is clear and consistent price signals. An area where pricing is rapidly becoming neither clear nor consistent is carbon pricing.
Many financial analysts view the currentslide in the ‘Baltic Dry Index’ as indicative of an upcoming collapse incommodity prices, however we do not believe the story is quite that clear cut.
Improving the productivity of the New Zealand economy is often touted as the key to raising our standard of living from itscurrent position in the bottom half of the OECD. Grasping the "work smarter,not harder" mantra would seem to be particularly apt for a country whereaverage working hours are among the longest in the world.
The recent hot summer has not only been bad for my skin, but for famers as well. A drought has reduced production of agricultural goods, undermining a major source of New Zealand export income. Furthermore, growth in both the number of people and cows has begun to stretch the water infrastructure in some regions, suggesting that a longer-term problem of water shortages beckons. When an economist hears the word shortage there is one thing we think – put the price up. So it is about time we set a price for water, by establishing a market.
Michael Cullen has been adamant about the principles that will guide tax cut policy under the Labour government. But his criteria are not nearly as binding as they might initially sound – a point that was forcefully rammed home by the prime minister’s assurance that the criteria would indeed be satisfied and tax cuts will be forthcoming.
John Minto’s decision to reject an award nomination from the South African government is hardly surprising. He is a doctrinaire socialist and is fundamentally at odds with the market-friendly policies pursued by the ruling African National Congress. Minto has sought to portray South Africa as an example of the failure of market-based policies to address poverty. To support his stance he has made some extraordinary claims about economic and social conditions in South Africa, some of which are quite simply wrong.
A quote in a recent article in TheEconomist magazine caught my eye: "politics has a habit of underminingeconomics". It was just a throw-away line in an article about the Bali conference on climate change. As an economist my initial reaction was "so true". Butit leads you to ask why is this statement so true? Economics is, at heart,about maximising the welfare of a society. One would, naively, expect that attemptingto achieve that goal would be a vote winner for politicians. In countrieswithout democracy, or seriously flawed versions of democracy, one might havesome understanding about why policies might not be designed to benefit themajority. But why do political decisions in democracies, like our own, sooften fly in the face of orthodox economics?
As you stand at the petrol pump watching the dollars clickingover on the counter, think about what it’s really costing you to drive aroundin your car. It’s not the petrol. The big latent cost is depreciation – whatyou paid for your pride and joy will in many cases turn into a lot less whenyou come to sell it or trade it in. In very broad terms, fuel purchasesaccount for around 10% of the total annual cost of owning and running anear-new car.
A raft of weak indicators over the lastmonth has intensified market fears that the American economy is now in, or theverge of, a recession.