Saturday, August 23, 2014

Du Fresne at his best

Great piece from Karl du Fresne published earlier this week in the DomPost:

Nigel Latta is one of those phenomena that happen when you’re not looking. One day, no one had heard of him; the next, it seemed you couldn’t turn on your TV set without seeing him.
His quirky method of presentation – walking backwards, making exaggerated gestures and pulling funny faces for the camera – obviously appealed to viewers. His shows on parenting not only rated well but spun off into live performances and national tours.

The clinical psychologist became a certified celebrity. Now he’s been further transmogrified into what is loosely termed a guru – no longer just an authority on parenting, but an oracle on the great issues of our time.


Colin James' poll of polls

Colin James averages the four most recent major polls and publishes at RNZ:

Friday, August 22, 2014

Guest commentary: Markets and inequality

David Lupton, an economist who works in developing countries, sent me the following opinion piece about markets and inequality. I sympathise with the view that the free market doesn't prevent monopolies. What's the answer?

A subject often raised as an election issue is increasing income disparities and the distribution of wealth. It is, of course, not a problem unique to New Zealand. In fact we are told that the world's 85 richest have as much wealth as the 3.5 billion poorest. 

Several parties express concern about this issue, but – probably because they do not understand why income disparities are increasing– the only solution proposed so far is more tax. Now I don’t think the 85 richest accumulated their billions by not paying tax. Nor do I think redistributing incomes (or preventing these people becoming so rich) is actually going to do much for the poor. Dispossessing the world’s 85 'rich pricks' and distributing all their money to 3.5 billion poor would give them $500 each. Maybe a lot for them, but it isn’t going to eliminate poverty. 

How did the 85 get to be so rich? Why is our society creating a wealthy elite? It is naive to blame it on our local politicians or expect them to come up with answers. It's a worldwide phenomenon, and one that  politicians themselves do not understand or control. Some people blame it on capitalism. If by that they mean the market economy I think they may have a point. But it is not the concept of a free market itself that is the problem; it's the way it has been working.

The basic tenet of the market economy is that there are many producers and many buyers, and there is competition between the producers and competition between the buyers. In the time of Adam Smith, this was a reasonable approximation to what was really happening. 

What's been happening since the end of the Second World War is that transport and distribution costs have been falling; barriers to international trade have been negotiated away and communications have improved so that it has become possible (and profitable) for companies in many spheres of activity to become larger. In many industries, costs fall as production sizes increase. While transport and communications costs were high, it was cheaper to buy locally made products. But once distribution cost came down, it made sense for these industries to consolidate. As a result, we've seen huge monopoly-like companies emerge. The worst cases are the Internet firms – an extra customer costs Facebook or Google nothing yet increases these companies’ advertising power and revenues. 

Now think what happens if the size of companies increases. The management of the bigger company is handling decisions with greater financial consequences. The choice of CEO can make the difference of billions of dollars to a global company. No wonder the company is willing to pay generously to get the right person - it behoves the shareholders to find the best possible CEO and management team. Even for local companies, managerial salaries reflect the size of the operation they manage, and amalgamation of firms has put additional upward pressure on remuneration. 

Contrast that with the role of the accounts clerk or the worker on the factory floor. Increasing the size of the business doesn’t increase the importance of their role, just the number of people that need to be employed – reducing as companies become more efficient.

So one factor driving wage inequality is the increasing size of firms. As a result, the free market is not working the way it should. Does this mean we should throw out the idea of a free market?  Not really. The alternative – a planned economy – comes a dismal second. We do have a third way – a supervised market.

If we start from the position that a free market requires competition between buyers and competition between sellers, the first thing to ask is, “Are those requirements being met?” And if not, to ask the second question which is, “What is the minimal intervention that will correct for the lack of competition?” 

Regulation to force companies to pass on their benefits of scale could have some effect. If it didn’t stop the rich becoming richer, it might at least pass on more of the benefit to the poorer. Ideally the price of a good should reflect the marginal cost of production, and governments should intervene on behalf of customers where this is not the case.   

But this leads us to a third, often forgotten question, which is, “Does the benefit from the intervention exceed the cost, or are we better off living with the imperfection?”  The third question is very important. Some might see the dominance of large firms and the huge salaries they pay their senior employees as an unfortunate consequence of  markets not operating as they should, but be prepared to live with this knowing government intervention might just make things worse. 

So asked whether we should limit the size of companies or reintroduce barriers to imports, the answer is “Probably not” because the reason for the trend to larger companies is that larger companies are more efficient. 

We benefit from being able to import goods at lower prices, and from the lower production costs of fewer larger firms. 

If that results in greater inequalities in our society, maybe that's a price we need to pay.

Pak'n'Save not thinking

Martyn Bradbury has succeeded in getting Pak'n'Save to pull their advertising from Whale Oil.

Well, that is their right, as Cam says. But the reaction from Whale Oil readers has been swift with many expressing their disapproval directly to Pak'n'Save.

Whale Oil is the best read blog in NZ by a country mile. Pak'n'Save are cutting off their noses etc.

WO has a million visits a month. I ask Cam to publish something to make the most of that readership. It does not mean I agree with or condone everything Cam writes. I'm sure that is no surprise to him.

The thing is Cam has built his readership on the back of controversy and attack. That doesn't mean Whale Oil can't be a force for good. And for Pac'n'Save that 'good' is reaching existing and potential customers.

They would do best to steer clear of political alignments. This morning I donated to a street collector for Samaritans because they don't meddle in politics. If it was the Salvation Army I'd have walked past.

Thursday, August 21, 2014

One-sided commentary

Latest suicide statistics were released yesterday and there was commentary around similar to the following:

But the number of suicides by the elderly aged 60-plus jumped from 75 in both the previous two years to 97 in the latest year, almost equaling youth suicides in numbers.
The increase in the suicide rate per 100,000 people was muffled because of our aging population, but Judge MacLean pointed to social changes that made older people increasingly isolated.
"It's a raft of things - the loneliness of elderly people, the whole environment of rest homes, palliative care, all that sort of thing," he said.
"We see the phenomenon in Western society, unlike some societies where several generations live together - that is perhaps the traditional Maori way as well - we see that changing. You become old, you move into state-subsidised or state-funded care and you are isolated in many cases from your whanau or family, and that is part of a phenomenon of the Western way of life," he said.
"Personally from my perspective, I think that is something not particularly helpful for a sense for the elderly person that they still have a point to living, feel worthwhile, are valued."
But there is another side to the story.

Two dear friends of mine ended their lives earlier this year. They knew exactly what they were doing and why. They were always positive, engaged, curious, good-humoured and in love with each other. Their children lived within minutes and saw them frequently if not daily. They were surrounded by love and support. But they were physically ailing, feared the loss of their independence. And, I believe, the prospect of not being able to care for each other..

Yes the trend to elderly suicide is going to increase.And I am not alarmed by the prospect. Elderly eople, particularly those diagnosed with a physical or mental degenerative condition, have every right to decide to avoid a bleak future. Their lives belong to them, to choose to do with as they wish.

Tuesday, August 19, 2014

Dasha Kovalenko on welfare

Dasha Kovalenko is number seven on the ACT list. I don't know her. Have never met her. But I thought this piece from the ACT site worth reproducing. Brings a new generations' attitude to the subject. I don't even know who Jeremy Kyle is.

Subsidising failure

I’m new to politics. Until now, I never quite clicked how corrupt politics can be. I’ve learnt that most parties buy their votes. The election has become a bidding war.
Which party can use up the most of our money? Which party can make the most decisions for us? The left often reminds me of an adolescent girl with her mother’s credit card. It’s pathetic and irresponsible. With that attitude – and I don’t say this lightly – it’s no wonder we have inter-generational welfare dependency.
I’ve noticed that certain subjects make politicians uncomfortable. Race is one. Welfare is another.
I want to talk about the latter. I worked out why the left doesn’t want to touch welfare – ‘cos no one wants to be the bad guy, right?
The great Thomas Sowell once said, “Welfare is paying people to fail. Insofar as they fail they receive the money. Insofar that they succeed even to a moderate extent that money is taken away from them. We are subsidising people to fail in their own private lives, and they become reliant on hand outs.” Spot on.
It’s important to have welfare as a safety net – to help people out in their time of need, to help them get back on the horse. But the issue we have is welfare dependency. And it’s an issue that crosses generations. People choose to have children they can’t afford to bring up, both in financial and in emotional terms. These parents expect the state to take care of their children. Let’s think about these kids. What kinds of role models do they have? What kind of expectation and self-esteem do they have? Surely it can’t be a great life. Do they know discipline in work and study?  Do they have ambition to reach their potential and contribute to our community? Or do they resent others who are better off, but who are working hard to succeed because they’ve had the chance to learn how? Do these children then turn into repressed, frustrated individuals who are then likely to become criminals? These are questions we need to ask.
I am a 25-year-old woman, and sometime I would like children. I know and understand that bringing up just one child takes an enormous amount of time, money, emotion, energy and determination. I know that I only want kids at a time when I have these things sorted – because any time otherwise would be selfish. I don’t expect the state to bring up my child. I know how important it is for a young person to have strong parental role models in their lives – childhood is the peak of development, where attitudes are formed and learning techniques are developed.
What Paula Bennett has done is great. We’re moving in the right direction, but we still need strong incentives for people to leave the benefit. If you were receiving $400 a week from the government to sit on your couch and watch the Jeremy Kyle Show, and you were offered a part-time job with an after tax income of $300, would the work really be that appealling?
ACT believes reducing company tax to 20% will create more jobs with more hours of employment, encouraging beneficiaries to choose work over welfare. We understand we can’t change the way people think, but perhaps we can break the cycle of welfare dependency, and live in a country where younger generations will want to be responsible individuals, working in our society and reaching their maximum potential

Welfare dependence is about more than the economy

Simon Collins writes about the contrast between National and Labour welfare policies. He also provides some "context":

Of course the main influence on welfare rolls is the economy.

This is highly arguable. Certainly it is the major influence on the unemployment benefit.

But we know for instance that the rate at which children are born onto welfare (either directly or shortly after) doesn't vary a great deal between booms and recessions.

Not a huge amount of variation. It's hovered around 1 in 5 for the past ten years.

Then the growth in numbers on sickness and invalid benefits has been positive for the past 40 years.

The other main point about "welfare rolls" is that numbers alone do not describe the depth of dependence. People who rely on an invalid or domestics purposes benefit do so for the longest times. Whereas most on the unemployment benefit are only there briefly. So while the economy is visibly affecting numbers on the unemployment benefit, their share of total dependence - or future liability - is much lower.