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.

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

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.

Continue reading “Supply chains are the least of it – labour markets signal change”

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.

Continue reading “Just don’t call it creative destruction, Rishi”

Lessons galore from Bernanke’s Nobel prize

Nobel prize committees are responsible for briefly focusing the world’s attention on some pretty recondite stuff.  Sometimes with comic results.  But occasionally, they get it just right.

As the years rack up since 2008 global financial crisis, Ben Bernanke’s economics prize – resting in part on his work on the financial collapse of the Great Depression – looks righter and righter.

It was certainly the world’s good fortune (that or G. W. Bush’s foresight) that put the leading contemporary scholar of the monetary and banking disasters of the 1930s in the chair of the US central bank at the right time.

Continue reading “Lessons galore from Bernanke’s Nobel prize”

Lucky Liz? Wait a few years to find out

Britain’s new PM, Liz Truss, might have caught a break last night.

The International Monetary Fund, after a longish period of complaisance in regard to fiscal stimulus, abruptly decided that the Truss economic plan was a good point to draw a line, in part because giving people their money back was seen as untargeted and might increase inequality.  

But in being so unusually prompt and decisive, it has missed a chance to wait and see which way the wind blows.

Continue reading “Lucky Liz? Wait a few years to find out”

Britain’s Liz Truss chooses a hard road

Is the new approach to economic policy of the Truss government important. Well, just look at the overreaction.

“It has been extreme” says the mild-mannered Tyler Cowen, who goes on to add:

I certainly can see reasons why one might oppose the plan, but the skies are not going to fall.”

Criticism from many of the government’s opponents can be dealt with relatively briskly – it’s usually easy enough to pick out contradictions in their own recent testimony.  Cowen again, with admirable restraint:

Continue reading “Britain’s Liz Truss chooses a hard road”

Ukraine war to end – but what then?

With every pause in the Ukrainian counteroffensive, talk of stalemate pops up.  But pay more attention to the currents, than the surface froth.

So nice to get some quality thinking in the Hoover Institution’s Strategika publication.  First, Niall Ferguson with a typically thought-provoking insight into war as a continuation of economics by other means.

He argues that Russia is just too poor to overwhelm a Ukraine backed by the rich West.  

Continue reading “Ukraine war to end – but what then?”

Five paths for China – none of them look good

The what-will-happen-to-China’s-economy debate seems a bit stale these days.  

So thanks are due to Michael Pettis,  a professor of finance at Peking University’s Guanghua School of Management, for coming up with one of the more plausible models of the Chinese economy.

His insight is in his analysis of the relationship between the private and state sectors.  And it seems a little more convincing than the far-seeing technocratic genius stuff so attractive to international bureaucrats and journalists.

Continue reading “Five paths for China – none of them look good”

Why Britain left

If you want a palimpset of reasons for why the UK brexited the European Union, look no further than Bloomberg’s headline:

“EU Will Propose Crisis Tool for Supply Chain Emergencies: Bloc wants ability to require certain orders be prioritized; Plan expected to be made public this month; some see overreach.”

OK.  And then the detail:

“The European Commission wants the power to force companies to fill orders within the European Union first during times of crisis, or risk fines.

According to a draft document seen by Bloomberg News, “the Commission may, in exceptional circumstances,” require companies to accept such priority rated orders of “crisis-relevant goods.””

Well it sounds reasonable.  But then:

“If they don’t, companies could face fines up to “1.5% of the average daily turnover in the preceding business year for each working day of non-compliance,” the draft said.”

Hmm. So that may be why:

“ … Nine EU countries — including Belgium, Denmark and the Netherlands — warned this summer as the proposal was being drafted that it could overstep the bloc’s authority.”

The policy springs from the EU’s well-remembered failures in coordinating the actions of its member states in the early stages of the Covid pandemic.

If enacted, the powers to suspend private contracts and direct company production would represent a remarkable restraint – and indeed control – of trade.  But arguably on the lines of the powers of the US government in similar circumstances, its supporters would retort.

What is less clear is why the combined national powers of the EU’s 27 member states to manage crisis (under the wise guidance of the EU) are not enough.

The EU policy rests on the truism that because elected national governments find it hard to cooperate, power must steadily aggregate at a higher level. So far the traffic has been one way.

Now, while the UK government dealt better with the vaccine and medical supply issues that so embarrassed the EU, many would say that since Brexit it has been no slouch itself when it comes to generating bad policy.  

But you could also argue that it hasn’t built an instrument for its creation; that it is clearly responsible when it fails; and that it is less overt in taking failure as a reason to push policy further.

And these coordination issues are not mere technical problems, they are the essence of politics.

Take the biggest issue of the year: Ukraine.

The actions of the German government (and those of a few other European countries) suggest they believe their economic and security interests are served by appeasing Vladimir Putin – up to a point.  Others very much do not. So agreement on a meaningful EU common policy is impossible.

In this instance, you might agree that’s not good. But do the benefits of a political union which would allow a single body to enforce a common foreign policy (including say a decision to go to war) outweigh the costs of political diversity in a continental union with nearly 500 million citizens?

Great exam question. Discuss.  Additional marks will be awarded for incorporating America’s 250-year examination of the pre-inclusive proposition that all men are created equal.

So Europe’s don’t-look-at-us approach is less a weakness of the European Union, and more a reflection of the diversity of its interests (even if one believes some of them to be mistaken). And conversely, a common policy will arise from shared fear of Russian political influence, rather than different political machinery.

The belief that Europe’s problems are those of political machinery and can be solved by transferring power to higher and more technocratic levels to ensure uniform outcomes, starts to assume the dimensions of a category error (although the average Brexiteer could be forgiven for only intuiting this proposition).

Therefore Europe’s more sensible national leaders will, as Bloomberg reports, perform their traditional function of curbing the EU’s more outrageous demands.

Exiled from this demanding chore, Britain’s new PM will have the less-traditional responsibility of examining and disgorging political responsibilities and associated powers which accumulated during Britain’s membership of the EU and have yet to be reshaped. This will offend many people.

And the sheer scale and all-embracing nature of this task should not be underestimated. Just look at Boris and company’s tortured efforts to reach a compromise which keeps Northern Ireland embedded in the United Kingdom without a further decisive break with the EU.

Liz Truss does seem cheerfully ready to offend many of the right people but one fears that it may take serious economic weather before enough believe it’s really necessary.