Trust is the prime victim of the current global financial meltdown. Much is made about greed as a motivator of market behaviour, a la Gordon Gekko’s "Greed is Good" speech in the film Wall Street. However, what makes modern market economies so successful is not that financial markets are a "free for all" but that they have to operate within clearly defined restrictions. Ultimately it is the rules and protections that promote economic performance in the world’s rich economies.
Our work in the news
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Here is list of Infometrics’ latest mentions in the media.
Economics is the study of changes at the margin. It is thus apt that the economic policies being proposed by the two main parties feature, at most, marginal changes. But endorsing the status quo sits awkwardly with their aspirational goals.
Most of us can recall what we were doing when major eventsoccurred like when the twin towers came down, when Princess Diana died orduring the stock market crash of 1987. The global financial crisis of 2007/08 isfast shaping up to be one of the defining periods in world history. But theenormity of what is happening on world markets can be hard for New Zealandersto comprehend. Twelve figure sums are being thrown around by governments and massivecompanies are going bankrupt. As we deal with our current economic challenges,the deteriorating world economy has New Zealanders wondering what else may bein store.
It’s official – New Zealand experienced its first recession in a decade over the first half of 2008. According tothe official statistics the quarterly level of economic activity is down 0.5%on its peak in December (adjusted for seasonal differences).
The issue of GST on food is once more gaining traction amongst various political parties and social groups. New Zealand’s system of GST is one of the best in the world because it has only one tax rate and that rate applies to almost everything. We do not have the absurd situation that exists in some countries where, for example, bread has no GST, chicken has no GST, but a chicken sandwich does have GST. Or the situation where the chicken sandwich attracts GST if it is served warm, but not if it is served cold.
Real disposable incomes of Kiwi households have been rising on average for a considerable length of time even after taking into account increasing costs of food, fuel and mortgages. This was very clearly demonstrated by a colleague of mine – Chris Worthington – in this column some weeks back. But averages sometimes disguise differences across social strata. Have we all being been enjoying the fruits of growth?
One of the key components of China’s economic development over the last 10-15 years has been the massive scale ofproduction that has been undertaken. Perhaps nowhere are the effects of thatepitomised better than in New Zealand’s manufacturing industry. Although otherfactors such as reduced import tariffs and distance to market have alsocontributed to the long-term decline in our manufacturing sector, it is clearthat businesses in New Zealand are unable to compete with Chinese firms when itcomes to large-scale production.
The policy structure most supportive of an expanding economy deserves to be a central topic of debate in the forthcoming election. Although there is little academic agreement about how to achieve a fast-growing economy (after the basics are in place, as they are in New Zealand), it seems uncontroversial to state that the size of the economy will remain a limiting factor of our ability to pursue other social goals.
National’s plans for the Domestic Purposes Benefit (DPB) have drawn a predictable response from the far left, while others have hailed the changes as well overdue. The DBP has always run a fine line between making solo-mum an attractive career choice and providing reasonable assistance to those in genuine need. More workers mean more money to go around and working towards financial independence can be very empowering for a person. Although most people do see handouts as a temporary last resort, we need to avoid having a welfare system that encourages dependence.
New Zealand is an indebted nation that persistently runs current account deficits. This raises the questions, what is a current account deficit and should we be concerned about it?