BRIAN EASTON: Radical Uncertainty

• Brian Easton writes –

Two senior economists challenge some of the foundations of current economics.

It is easy to criticise economic science by misrepresenting it, by selective quotations, and by ignoring that it progresses, like all sciences, by improving and abandoning old theories. The critics may go on to attack physics by citing Newton.

So it is with considerable pleasure that one engages with John Kay and Mervyn King’s Radical Uncertainty. The authors are senior economists who have taught at major universities. Each has much practical experience. Kay left senior positions in the academy to work as a consultant and as a columnist and he has written a number of earlier books (some of which I should have reviewed); King was Governor of the Bank of England from 2003 to 2013 so that he oversaw the central bank during the Global Financial Crisis.

Because it is a serious critique of economics, the book has to go back into the foundations of the discipline. A useful starting point is the distinction between ‘risk’ and ‘uncertainty’ which faces anybody thinking about, or preparing for, the future.

Briefly, risk is about where there are probabilities attached to future events; uncertainty is where there are not. The latter events include the ‘unknown unknowns’, or as Kay and King call them ‘radical uncertainties’.

BRIAN EASTON: Gabrielle’s Trumpet challenges fiscal stability

• Brian Easton writes –

Cyclonic Storms Raise Economic Questions.

Some years back – it was in the time of the Key-English Government so, as usual, this column is not making a party-political point – a friend working in the climate change area wondered to me whether we should be putting more effort into adaptation. Whatever New Zealand does in reducing its global emissions, it would have little impact on global warming. There was going to be some climate change anyway. Perhaps we needed to pay more attention to taking measures which would reduce its effects.

The thinking at that time was on rising sea levels and their impact on buildings and infrastructure close to the shores. (A related issue is tsunamis.) Storms were mentioned but I do not recall anybody discussing adaption policies other than for the threats from the sea. I knew, even then, that cyclones in the central Pacific were more common; I had seen a long-term record for Samoa. I do not recall any suggestions that they might move south with the intensity that Cyclone Gabrielle did – we forgot about Cyclone Bola.

Could we have mitigated Gabrielle? Lurking behind that question is the abolition of Catchment Boards when they were merged into Regional Councils 1989. We were told at the time that their task to restrain the rivers from flooding was largely over. I wonder if the residents of Esk Valley think that today. Dropping a responsibility down in the bureaucratic hierarchy often results in reducing its ability to do its job. Was this yet another example of short term gains to be offset by long term disaster?

Not as simple as it looks

The international commentariat may be forgiven for believing new PM Chris Hipkins has relaunched the government rather well. 

First a clever pivot to the centre and now a compassionate and inclusive focus on disaster recovery.

Giving credence to rumours that the key strategic brains agreed and executed a skilful change of direction rather well.

Economic lessons from Ukraine: Part 1

One of the more important things to happen during the Ukraine war has gone largely unnoticed.

The Ukrainian government has announced that “half of Ukraine’s business regulatory procedures will be cancelled”.

Obviously, one hopes they get the right 50%.

Is Britain doomed (again)?

Pity the poor Brits.  They just can’t catch a break.

After years of reporting of lying Boris Johnson, a change to a less colourful PM in Rishi Sunak has resulted in a smooth media pivot to an end-of-empire narrative.  The New York Times, no less, amplifies suggestions that Blighty will soon fall behind Poland or even – get your atlas ready – Slovenia.  So dire is the situation we are told that even a reversal of Brexit may not be enough to save a once-proud nation.

You really can’t have it all

The politics of reality have made for a strange year.

In Germany, an improbable rainbow coalition burnt lots of coal so it could close its nuclear power stations.  Americans decided an unpopular Biden was marginally less problematic than Trump.  Vladimir Putin overestimated his attractiveness and underestimated Ukraine’s. The Brits fell out of love with their Brexit government.  And China’s Xi is finding it hard to get out of unstable lockdown and into stable growth.

Incumbents are unpopular all over the show – even New Zealand now.  But that doesn’t always mean oppositions are doing much better.

Who says Britain’s Conservative MPs are not future oriented?

In fact, they are acutely focused on what job they might be able to get after the next general election, due in 2024.

Prospects looked worse after new Chancellor Jeremy Hunt delivered his mini-budget on Thursday.  His programme: rolling tax increases for the next six years.  And because tax thresholds are not being raised in line with rising prices and wages, persistent inflation (which also seems more likely) will make it more painful.

Have a smidgen of sympathy for the poor multi-millionaire.  Under the current bipartisan rules of the game, there is no alternative if the growth in debt is to be curbed.  Those who produce the most, must give the most.

Unions press ahead to win “fair pay” agreements. But what if they add to inflationary pressure?

One of  NZ’s leading economists Cameron Bagrie told  the TV3 AM show on Tuesday the increase in wages in NZ is a “success” but we are getting to a point of too much success.

His warning came as  the Dominion-Post reported what it called “an avalanche”  of fair pay applications are expected to be made over the next few months as unions gather momentum to launch bids for better pay for workers under the new fair pay agreement law.

Fair pay agreements set out specific conditions and deals between workers and employers in an industry or occupation, with the regime for establishing them coming into effect next month.

They can be triggered by support from 1000 workers or 10% of a workforce. The fair pay legislation stemmed from a major plank in the Labour Party’s election policy. 

So how will that  “avalanche”  fit  with what the Reserve Bank  is  trying to do  with its action  to halt the momentum in inflationary pressure?.

Will  it be  another  economic disaster to be  chalked up by the Ardern government?

Here is  what  Bagrie told  AM  viewers:

“What we’ve got there at the moment is success. It’s a great story that wages are moving up, of course, but we are now into that zone where it’s too much success because it’s actually adding to inflation.”

It’s only a  month since the Ardern government passed into  law its flagship fair pay legislation.

Workplace Relations Minister Michael Wood called it an historic moment for New Zealand workers.

“The Fair Pay Agreements Bill will improve employment conditions, by enabling employers and employees to bargain collectively for industry or occupation-wide minimum employment terms,” he said.

 “By increasing bargaining co-ordination to agree minimum employment terms within a sector, outcomes for vulnerable employees will be improved and we will see growth in the incomes of New Zealand employees.”

Similarly, the Greens said the passing of the legislation was a “landmark change” and a “huge step forward”.

But will the  enthusiasm for  the  new  legislation  be  as  strong if, as Cameron   Bagrie  says,  it  adds to  inflationary pressure  just as the Reserve Bank raises interest rates again in its battle to control the inflation that is pushing  up mortgage bills so fast?

As the Dominion-Post reported this week,many sectors are already prepared to get their applications for fair pay agreements through on December 1.

First Union’s Louisa Jones said bus driver and supermarket retail members wanted to initiate the process and put in applications as soon as possible.

“This is massive. Workers are excited to try and do it.”

They already had over 1000 signatures for supermarket workers, she said.

Earlier this month a deal saw Countdown staff receive an average pay rise of 12% over a two-year collective agreement, with the union wanting to see other supermarket workers offered a similar rise.

First Union is working with the Tramways Union on the bus driver application, with secretary Kevin O’Sullivan saying they would have the numbers to kick off the fair pay process, “no problem at all”.

 O’Sullivan says people in regional NZ and smaller towns will benefit most from fair pay agreements.

“I’m completely confident we’ll [see] no problem having the numbers. The issue will be once we get down to negotiations”.

O’Sullivan said a fair pay agreement would have the most impact in the regions and in smaller towns.

As Point of Order sees it, it would be fiendishly ironic if the wage increases negotiated under the new fair pay legislation add to inflationary  pressure within the economy.

Supply chains are the least of it – labour markets signal change

It seems such a long time since our governments (well the left-wing ones anyway) were steering us deftly through the pandemic?

Sure – there were a few glitches – ‘transitory’ inflation for one.  But there was a catch-all explanation – supply chain disruption. And normal service would be resumed shortly.

But like most comfortable explanations, there seems to be a little more to it than that.

Just don’t call it creative destruction, Rishi

The MPs of Britain’s ruling Conservative party don’t lack confidence.

Having defenestrated PM Liz Truss, the choice of the non-Parliamentary party as leader, they decided to take no more silly risks, and installed their own choice, former Chancellor Rishi Sunak, without troubling to consult the membership.

Time will tell if the members thank them.