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Posts Tagged ‘NZ Economy

BEING HONEST

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When the ‘books’ are opened in the Pre-Election Fiscal Update (PREFU) next month you will see that for the foreseeable future the country will be borrowing to meet operational (day-to-day) expenditure. We are living in a fools paradise if we think that can continue indefinitely. Something has to give.

In 2019 net government debt was 57.7b. By 2024 it is projected to rise to 200.8b. Perhaps even more worrying is the countries private debt currently projected at 177.8b or 94.3% of nominal GDP. Both the government and people are living off their credit-cards. The interest payment impost is staggering and much of that is owned to overseas investors.

I have no difficulty with the government borrowing for infrastructure. You can argue around the quality of that investment with Labour and the Greens obsessed with train-sets, cycle and walk-ways and National committed to a first world roading network.

But its operational spending that concerns me. Jacinda’s mob continues to spend like drunken sailors with no attempt to pull back on the ‘nice to haves’ or even the ‘could haves’ for the simple reason they are imprisoned by their own rhetoric and are incapable of making the hard decisions leaving it to borrow and hope.

With the whole world facing the same situation to a greater or lesser degree at some point ‘your’ ability to borrow runs out. As I said at the start … something has to give.

National at least is facing up to the issue and proposing a freeze on government Kiwi-saver contributions until fiscal conditions permit … if anyone wants to argue that borrowing money to give people money makes sense then be my guest. But much more is needed … Jacinda’s fees free, first year tertiary study has to go … it never met its stated aim. What about Winston Peters’ $191m for new diplomats and the opening of new embassies at a time the world is shutting down … the list goes on … and we won’t even talk about the gross misuse of Provincial Growth Fund monies as a vote buying exercise by an arrogant Minister who makes his own rules to suit himself.

Political parties need to be open and honest and stop pretending its business as usual because its not.

Written by The Veteran

July 19, 2020 at 1:04 pm

Winter is here

Winter is coming?

No! Winter is here, and in more ways than one.

From Stats NZ today:

Gross domestic product (GDP) fell 1.6 percent in the March 2020 quarter, the largest drop in 29 years, as the initial effects of COVID-19 restrictions impacted on economic activity, Stats NZ said today.

Breaking it down by sector:

  • Agriculture -1.9%
  • Mining +4.3%
  • Manufacturing -2.4%
  • Construction -4.1%
  • Retail Trade/Accom -2.2%
  • Transport -5.2%

And remember that this is a quarter almost entirely not under lockdown; only six days under Level 4 and two under Level 3.

What the hell is the GDP figure going to be like for the June quarter?

 

And this is where Visible Death vs Invisible Death is going to come into play – and for years to come.

The impact of making us poorer:

In other words, if real per capita GDP in New Zealand falls by ten percent due to the lockdown and other effects associated with Covid-19, life expectancy would be predicted to fall by 1.4 years.

That’s the equivalent of 8,750 dead people.

And as I pointed out in that article that’s before we look at the deaths that will arise in the short-term because of the impact of healthcare delayed or missed due to the lockdown, which has happened in every other country so must be happening here as well:

Matt Hancock, the [British] health secretary, refuses to give a figure for the potential non-Covid fatalities from this catastrophe but the cabinet was told it could be up to 150,000 avoidable deaths.

At least the British government asked the question of their public health experts.

Oh – and Australia’s 1st quarter GDP drop was just 0.3%.

Readers should also take a look at this article written by Alex Davis at The Emperor’s Robes, Both of New Zealand’s Post Covid19 Futures are Bad, where he looks at two futures:

Future 1: Covid19 is not eliminated and breaks out or returns

Future 2: New Zealand eliminates Covid19 and becomes a South Pacific Prison for its Citizens

 

From that second future:

Whatever hope we may have to eradicate Covid19 in New Zealand one thing is certain – it will not be eliminated from the rest of the world. So, what then? New Zealand is confronted with a lose:lose scenario. We can lower the draw bridge and let the world back in but if we do so it is highly likely we will reimport Covid19

it is highly likely someone, somewhere will slip through.

That was written on June 4, but it actually was not a hard prediction to make. Alex wraps up the detailed piece with his own pick for out future:

Eventually however whoever is in power in New Zealand will have to accept the inevitable: they will *have to* re-open the borders and watch Covid19 do what it has done everywhere else: slightly shorten the long lives of a small number of already very sick old people. Their deaths will be tragic and very public (unlike those for example of cancer sufferers whose treatment was delayed by lock down). The ship of New Zealand will come to rest exactly where it would have otherwise, Covid19 will be among us causing little harm to all but a handful, but we will be vastly indebted, causing harm to many.

One final point is that this is also another example of how crap New Zealand is at collecting and processing statistics compared to other OECD nations. It’s been two-and-a-half months since the end of the March quarter, so that means we’re not likely to see the June quarter stats until mid-September, for which the government will be grateful with the election on September 19.

Written by Tom Hunter

June 18, 2020 at 1:25 am

The Penny Begins To Drop

We usually think that the reason that laws are obeyed is that if they’re not we’re going to be punished in some way, starting with regulatory refusals and escalating all the way to the use of armed force by the Police.

 
Where you sit on that scale is entirely dependent upon the degree to which you are willing to cooperate with the law. The more you resist the State the worse it gets for you.
 
Certainly the Left, always under the yoke of opppression in our societies, feel all this keenly and thus yearn to be the ones with the power to enforce the laws they want. And in the last three months in New Zealand they’ve had their chance – and then some.
 
But in fact our entire system of law and order actually relies upon cooperation by we as a people, not on the State’s use or threat of force. We cooperate because the alternative is anarchy of the most primitive sort, as we are now seeing in Minneapolis and other American cities. We cooperate because we collectively think it best to do so.
 
That theory also works from a utilitarian viewpoint; were we to choose not to obey a law or laws on a mass scale then there is no amount of Police that could stop it, at least not in a free society. In a Police State huge numbers of people can be controlled by very small numbers, but even to reach that point requires the people to be terrorised and murdered in large numbers for years to really have an effect, and the effect never lasts. Such regimes always collapse from the very conditions they enforce.

 

 
There was an interesting article published ten years ago in the depth of the GFC that pointed this out, at least from one perspective of financial problems, The Coming Middle-Class Anarchy:

True story: A retired couple I know, Brian and Ilsa, own a home in the Southwest. It’s a pretty house, right on the manicured golf course of their gated community (they’re crazy about golf). 

The only problem is, they bought the house near the top of the market in 2005, and now find themselves underwater. They’ve never missed a mortgage payment — Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm

Brian and Ilsa are salt-of-the-earth people: They put four kids through college, they always paid their taxes. The last time Brian broke the law was in 1998: An illegal U-turn on a suburban street.

So they applied to the HAMP (Home Affordable Modification Program) program to help and after jumping through many paper hoops for three months they get approved. Then they get a letter from the bank saying that they don’t qualify and on top of that, they owe backpayments for the months of reduced rent, plus interest. So they’re depressed and pissed off – although as the writer says:

Now, up to this point, this is just another sob story of the Mortgage Mess—and as sob stories go, up to this point, it’s no big deal.

But then he goes on to point out that something else is going on here:

Brian and Ilsa — the nice upper-middle-class retired couple, who always follow the rules, and never ever break the law — who don’t even cheat on their golf scores — even when they’re playing alone (“Because if you cheat at golf, you’re only cheating yourself”) — have decided to give their bank the middle finger.

They have essentially said, Fuckit.

“We follow the rules, and look where that’s gotten us?” she says, furious and depressed. “Nowhere. They run us around, like lab rats in a cage.”

They decide not to default but to simply keep paying the minimum and dare the bank to foreclose.

But Ilsa is quietly, constantly insisting that they stop paying the mortgage altogether: “Everybody else is doing it—so why shouldn’t we?”

A terrible sentence, when a law-abiding citizen speaks it: Everybody else is doing it — so why don’t we?

Shades of what I wrote about in Middle Class Warfare, but I was also reminded of this while reading the following article by Elle at Homepaddock yesterday, Rules only for the rule-abiding:

Businesses are failing.
Jobs are being lost.
Diagnosis and treatment of serious illnesses have been delayed.
People have died and given birth alone.
Funerals, weddings and other gatherings have been restricted.
Rest home residents have been denied visits from family.
People have been prevented from worshiping, playing sport, celebrating and socializing with family and friends.
For more than two months we’ve been severely restricted in what we can do and where, with whom and when we choose to do it.

But thousands of people have been allowed to protest over the death of George Floyd.
That murder was atrocious but it’s no excuse for flouting the Level 2 rules by which  most of us, however unwillingly, have been abiding.

Black lives matter and so do all the lives and livelihoods of everyone else.

If there is no risk from ignoring the rules for a protest, there is absolutely no excuse for keeping us at Level 2 where the rules are obviously only there to curtail the rule-abiding.

Going back to the 2010 article:

TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry — the upright citizenry — throwing in the towel and deciding it’s just not worth it anymore.

UPDATE:
Heh, when I talked of the Middle Class revolting I didn’t mean this:

A pair of Brooklyn lawyers are facing federal charges for throwing a Molotov cocktail into a New York Police Department cruiser during riots following the death of George Floyd in police custody.

Colinford Mattis, 32, a Princeton graduate and member of a New York community board, and Urooj Rahman, 31, a lawyer and Fordham alumnus who recently lost her job, were arrested and charged with attempting to damage or destroy law-enforcement vehicles on Saturday after a surveillance camera recorded the incident.

Written by Tom Hunter

June 1, 2020 at 9:16 pm

A billion here, a billion there…

All I have to say about the NZ budget released yesterday is expressed by this famous quote from Everett Dirksen, who was the Republican Senator for Illinois from 1951 to 1969.

Supposedly this was invented by a reporter from partial quotes by Dirksen, but he liked it so much that he never bothered correcting it.

 
And on this note, here are two stories out of Auckland.
 
First up is the Auckland Ratepayers’ Alliance story on their inaugural Auckland Town Hall Rich List. You can click on the link to see the names and faces of all the executives earning more than $250,000 per annum. There are 86 staff at the Council and CCOs earning more than a Minister of the Crown:
 
  • Six earning $500,000 or more
  • Three earning $400,000 to $500,000
  • 39 earning $300,000 to $400,000
  • 38 earning $250,000 to $300,000
And of course this does not take account of the many more who are earning less than $250k per annum but more than $100k. I doubt these people have been or will be affected negatively in any way by the catastrophe of the last two months.
 

…the City Rail Link (CRL) – which will give ten thousand commuters to the city’s central business district a somewhat faster journey to work.

Those faster journeys were estimated to be worth (on a present value basis) about $2 billion, and the construction cost was originally estimated (guessed, really) to be about $2 billion. Then, last April, with $700 million spent and not a lot to show for it, the cost envelope was revised to $4.4 billion, with no guaranteed finish date.

Just another rail project actually. They’re almost all like that. But the fallacy of sunk costs will now become the main driver, with ever more fantastical benefits calculated into a future of 20 or 40 years from now, based on population growth rates for the city that will be based on immigration flows that were not even politically and socially sustainable before the Wuhan Flu. Comparisons will be made with the great city train systems of the past in New York and London, not recognising that they were built because they made economic sense then. Even in New York before the pandemic, city officials were wondering where they were going to get the money to upgrade the whole system, since it’s not paying for itself.

The costs of the rail tunnel are supposed to be shared 50:50 between Auckland ratepayers and NZ taxpayers. I have calculated that a person in my financial situation – for example, me – will have to cough up much more than $10,000 in rates and taxes to meet my share of the bill. I can think of heaps of better uses for my money.

Look for much more like this to come. And also look for Auckland to ask the government to write off a substantial portion of this debt in future years. It’ll be unfair to the rest of the nation but Auckland is where the Parliamentary numbers are. And hey – we’re a team of five million, right?
 

Written by Tom Hunter

May 14, 2020 at 11:00 pm

Die MSM, Die – I’d buy that for a dollar!

Actually I would buy Stuff for $1.00 – but only for the pleasure of firing Alison Mau. In fact I might pay more for that experience.

It really is true that in every crisis there is always a silver lining. And with this news, it’s a big, bright silver ring of light:

Stuff’s Australian owner says it terminated talks with New Zealand media company NZME last week. 

NZME, owner of the New Zealand Herald and Newstalk ZB, said in a statement to the NZX on Monday morning that it was seeking urgent legislation to allow it to buy rival publisher Stuff “for $1″by the end of May.

One dollar? $NZ 1.00? That’s less than Newsweek was sold for a few years ago, which was $US 1.00.

This comes on top of the withdrawal from new Zealand of German media group Bauer Media several weeks ago, which decision destroyed long-lived magazines like The Listener and the NZ Woman’s Weekly.

Awwwww…! Where will we Righties get our weekly, local TDS from now, plus our glossy fix of Kate and Meghan and Jacinda and Neve and Gaylord?

The NZ Herald of course – and TVNZ, RNZ, TV3 and so forth.

I did have to laugh at DPF’s take on this over on Kiwiblog:

The idea of the Government passing a special law to allow the two main print media companies to merge is abhorrent. This would create one mega company that would be politically beholden to the Government.

You mean more than TVNZ and RNZ are now as SOE’s? And in what way would the NZ MSM’s worshipful coverage of St Jacinda of Corona differ from what it has been, complete with brain-dead questions that never even got to the heart of what was going on.

At the time of the Bauer decision none other than Stuff.co.nz wailed about this, “So many livelihoods, so much devastation“.

But the writing was on the wall for them too as the dreaded Chinese Kung Flu would go on to devastate the MSM even further and force Stuff itself to put out a begging bowl a couple of weeks ago:

Stuff has a long and trusted history of telling New Zealand stories. Through some of our newspapers, that dates back more than 150 years.

Now, as with many other news organisations here and abroad, you can make a direct digital donation too. Donating supports Stuff’s mission to report your stories without fear or favour, and with fierce independence – it directly contributes to powering newsrooms across New Zealand.

I’d like to think they were drunk when they wrote that: a wild last spree before hanging in the morning. This is the MSM source that basically won’t allow any but the mildest right-wing critiques of various issues to sully its comment sections.

It appears that that this announcement by NZME has temporarily stopped talk of a sale as the Australian owners of Stuff, Nine, have walked away from any discussions.


But only for a while. The relentless economics of the situation will force everybody’s hand on this sooner or later. If NZME and Stuff don’t merge the latter will simply collapse, leaving NZ effectively with the situation envisioned by DPF. Even that won’t matter because the NZ Herald won’t be far behind them.

Having started with one 1980’s movie classic I’ll finish with a 1991 movie, Other People’s Money

Despite the year it was made it captured the 80’s zeitgeist because it was based on the 1987 play of the same name. It’s nowhere near as well known as Wall Street, probably because the original play was twisted into a happy ending by Hollywood and the bad guy is played by Danny DeVito, who is no Michael Douglas.

Still, DeVito’s character, known as Larry The Liquidator, gives one of the all-time great speeches about the brutal realities of the marketplace, from which the quote below is probably the most well-known – and in this case the most appropriate:

 

We’re dead all right. We’re just not broke. 

And do you know the surest way to go broke. Keep getting an increasing share of a shrinking market. 

Down the tubes. Slow but sure. 

You know, at one time there must have been dozens of companies making buggy whips. 

And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. 

Now how would you like to have been stock holder in that company?

Written by Tom Hunter

May 11, 2020 at 6:00 pm

Make New Zealand Great Again

My Photo

Old Trottsky has been hammering away again on his dream of New Zealand retreating back to the Golden Weather of his childhood – sans all the social conservatism that was actually a key part of making that socialism possible, starting with social shaming.

Like Marx himself Trott’s has very few specific ideas of what exactly is needed to make New Zealand Great Again but like his compatriot Bradbury and others it seems to involve the rebirth of huge government-owned businesses like the Ministry of Works, in concert with government approved private corporations like the old Fletcher Challenge, all bound together with massive unionisation and lots of regulations to keep an eye on the greedy seekers of profit. Not so strangely – if you understand anything about Old Lefties like Trott’s – is the accompanying fantasy of a strong military than can kick some butt when needed by “The People’s Dictatorship“.

As far as the rest of the private sector is concerned – yes Virginia, we’re not talking Communism here, let’s give him credit for that – his suggestions are based on this key assumption:

That strange combination of creativity, thrill-seeking and greed, which propels the entrepreneur towards new ventures will soon respond to new incentives and new opportunities.

Gosh! Greed is good, as they say. Who knew?

As always with Leftists, other key factors for entrepreneurs are ignored in Trotter’s world of a government that only does good, huge, positive things as it dominates the landscape.

What he misses in his ode to Big Government is the most basic thing desired by entrepreneurs from government:

a high degree of certainty in government plans, at least in the near future, and a willingness to leave them the fuck alone.

It’s tough enough coping with and balancing all the things that go into a business – all the carefully laid plans that have to be modified quickly, sometimes drastically, or even scrapped in the face of market changes. All the things both little and big that change almost daily.

But it becomes so much tougher when, in the back of your mind, you have no idea what’s coming down the road from government in terms of rules and regulations, taxes, interest rates and general bureaucracy, that last often based more on some local official’s whims than the black-letter law that government thought it had passed.

And like any eco-system, these effects often take years or decades to become apparent. I would suggest that NZ’s hopeless lack of productivity over the decades – which shows up in us working more hours per year just to keep up with the Aussies – is down to the fact that, for all our politicians bloviating about entrepreneurs and the like, we simply have not provided an environment of government laws and regulations that’s stable enough to compensate for all those other market factors.

As a result our entrepreneurial class has steadily dwindled as such people have given up and fled overseas over the decades.

And that’s before we get to the current disaster. What trust has any entrepreneur got that this won’t happen again soon, with COVID-25 or whatever? And there is no hope that a National government would be different. They may be picking away now at various scabs of technical failure, but they supported it all from the start, craven cowards that they are.

So perhaps we will see a return to the world Trotter so loves: the NZ of 1935-1984 where one slogged along to a dull, boring job in some great government approved corporation like Fletchers or some godforsaken government department like the MOW or NZ Rail, all of it enabled by government micro-management whose final exemplar was RD Muldoon.

I vividly recall those end days in the early 1980s, before Rogernomics. I and every one of my varsity peers hated it all; we hated it even more when we got summer jobs in those places and saw our futures laid out before us in promotions from Level PL6 (Programmer Learner) to Level PL7. And time and again, when asked why we would not turn those summer jobs into permanent positions, they could never understand our responses. In fact they looked at us with incomprehension. It’s one of the reasons so many of us fled on the big OE and never returned, or did so only when we were married with kids and had piled up enough money that we could be somewhat shielded from the Kiwi disease.

And we can see all this in just one of Trotter’s ideas, this for tourism-replacement:

Let’s invest in movies, television series, plays, music, novels, computer games. Encourage the world to partake of New Zealand’s unique creativity

What? 21st century re-boots of 1970’s Public TV cringe-fests like Buck House and other equally unfunny comedies that totally lack in “unique creativity”. I saw nothing funny about it and others like it as a child and assumed it was because I was too young to get it. But over a decade later I would sit in a NZ History class viewing such period gems and finding that not only was I not laughing but neither was anyone else in the room. And this at a time when we were laughing our heads off at the distinctly NZ humour of Bad Taste.

And who was behind that? An unknown, no-account movie maker named Peter Jackson. Bad Taste was held to be “appalling” for it’s combination of black humour and splatter-horror. And nothing changed in the next few years.

I can still vividly recall some ponce at the Wellington Movie Festival sniffily telling a TV interviewer that they were not going to list Jackson’s next movie Meet The Feebles because “nobody wants to see puppets farting and covered with gore“.

And that guy was no 60 year old Christian Conservative but a trendy, arty type in his 40’s or so who perfectly represented the NZ “ART” scene. It was no surprise that Jackson basically got kicked in the teeth by that community and hence by related government “support” for years before making it big thanks to US investors.

And that’s the New Zealand attitude towards entrepreneurs in a nutshell. That’s why they have to make it overseas first, and we have to hope to god that they bring the talent and the money back to NZ, as Jackson has done with this huge Weta Workshops company sprawled amidst the old abandoned commercial and industrial warehouses of Mirimar.

I don’t see anything concrete in the suggestions of Trotter or any other Lefty, let alone their idols, Robertson and St Jacinda of Corona (h/t PM of NZ), that would have helped Jackson then or a similar person now. In fact Jackson has become something of a hate figure on the NZ Left over the issue of unions, a facet of our current government that its supporters are drooling to strengthen.

Not doing so many government things is the key: things not to be done, before any possible positive things, like incentives around venture capitalists and investment, can be discussed. Things not to be done by direct government investment or “R&D incentives” and the sort of subsidy schemes and government-sponsored awards and stuff that was around when Jackson started but which he barely saw because they always get captured by special interest groups whose Group Think is anathema to the likes of Jackson.

Trotter himself tripped over the reality of this several years ago when he bemoaned the fall of John Campbell on TV3:

It is one of the great ironies of New Zealand’s (relatively) recent cultural history that the impetus towards free and open airways has, to a startling degree, come from freewheeling cultural entrepreneurs like Colin Scrimgeour, Gordon Dryden, George Andrews, Marcia Russell and Rod Pedersen. Not forgetting that madcap piratical quartet who, in 1966, launched Radio Hauraki.

Oh it’s an IRONY is it Chris? That TV3, the private-sector network driven by greed would actually end up being the one that pushed progressive news and themes the hardest. And this:

One of the strangest aspects of New Zealand’s deeply conformist society is the way it drives so many of its non-conforming citizens into the private sector. Not, it must be said, in the spirit of avarice that makes true capitalists rich, but because it seemed to them about the only place where it was possible to set up an institution capable of saying “Yes”.

That’s the final joke arising from Trotter’s suggestions about the Great Things Government Can Do for entrepreneurs in the wake of the Sino Sinus Disease, and what is really the only lesson and thing they actually need to do for all the talk of “new incentives and new opportunities.

Stop saying “No” and get out of the fucking way.

Written by Tom Hunter

May 10, 2020 at 1:47 am

A picture is worth a thousand graphs

I wish I’d seen this graphic when I published Visible Death vs. Invisible Death a few days ago.

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Produced for those complaining about articles that have too many words, numbers and graphs.
 

Having said that, here’s a very cool graph from Snopes of the progress of the virus. An interesting way of portraying the data, at least up to early April.

 

 

Written by Tom Hunter

April 28, 2020 at 11:14 pm

Australia for the Win?

Given how dreadfully useless our MSM is I like to make a point of linking to other blog sites for actual thinking, research and argument. To that end here is some material from Australian economist Jim Rose, and his blog Utopia.

In this article he takes a comparative look at how Australia and New Zealand are coping with the Wuhan Bat Soup virus, NZ locked down, Australia is social distancing.

New Zealand                                                            Australia

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That data from Google Mobility for April 17 gives the lie to the claim that the Australian “lockdown” is similar to ours. In every major category from Retail & Recreation to Residential, the NZ figures are tougher than Australia’s – often vastly tougher.

Yet both nations are tracking similarly for the virus. As Rose said:

With many sections of media screaming for tighter lockdowns, as they sung the praises of New Zealand’s PM Jacinta Arden, insisting that Australia must follow New Zealand‘s lead; closing hardware stores, shutting down the building industry, banning takeaways (so you couldn’t even get a coffee) and hairdressers – our PM had to make a decision. 

And he stood firm, stating ‘’every worker is an essential worker’’ as he rejected imposing a New Zealand type lockdown that many were calling for. 

Several weeks later, we now see that Scott Morrison was right…

If our PM had of followed NZ, as many ABC types where calling for – we’d have a million more at least unemployed, and we’d be tens of billions more in debt.

No wonder I’m not seeing any more Facebook/Twitter or blog postings and comments filled with snark and mockery about the stupid, Right-Wing, Conservative, Christian PM of Australia – “ScoMo” and “Scotty From Marketing” as the snide had it in the early days of April.

And what will they be saying about the comparison in a few months time when the Australian economy has got up off its knees in better shape than us?

Meantime, while I had not looked into what Australian medical experts were saying it seems Rose has that also:

Peter Collignon (one of Australia’s leading infectious diseases experts) said the latest data showed New Zealand, with a population of 4.7 million, had about 20 new COVID-19 cases a day compared with Australia, population 25.5 million, averaging about 50 a day. 

He said the good news was that both countries had managed to reverse the curve, but while New Zealand had imposed more draconian “level four” lockdown measures, Australia’s less stringent approach appeared to have been as effective. 

New Zealand has been locking everybody in their houses, there’s no going to Bunnings, and there is no evidence they are doing any better,” Professor Collignon said. 

I actually worry that what may be happening in New Zealand is if you come down too hard, people stop complying as much as they should.’

The blog followed this up with an interesting comparison of Australia to Sweden in terms of “lockdown”.

 

There’s actually not as much difference between Oz and Sweden in terms of mobility reduction as there is between Oz and NZ.

And of course the more locked down you are the tougher it is to get out of it, which brings me to one of the key insights of the infamous Spanish Flu of 1918.

Written by Tom Hunter

April 26, 2020 at 7:55 pm

Visible Death vs. Invisible Death

One of the most famous economic essays ever written is That Which is Seen, and That Which is Not Seen, by 19th century French economist, Frédéric Bastiat. He introduced what he called the fallacy of the broken window, where the money spent to fix the window – paying the person who made the glass and the glazier who installed it – is seen, but other costs are not:

Frédéric Bastiat


But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”


It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.

The lockdown of New Zealand society to deal with COVID-1984 is presenting the same problem, except instead of money, the counting is in deaths.

The other day I looked at a report of the results from testing the epidemiological model used by the NZ governments’s health care advisors.

Buried within the report was a short section that made crude sensitivity estimates of the costs and benefits of the Lockdown across just one part of the NZ economy: building and construction. The report estimated the benefits of avoiding deaths and hospitalisations in that industry at $7.6 million and the cost at $3 billion (one month, 250,000 workers at $3000 per week).

The point of this was not to try and calculate precise numbers but to test the ranges and comparisons across different runs and sensitivities to get a handle on the possible cost/benefit. As the report said:

Of course, the benefit cost ratio of .003 is from just model run. Different, and plausible, assumptions can readily generate benefits that are a order of magnitude, say, ten or twenty times, higher than the $7.6 million. But it is very difficult to see how they could be over 300 times higher.

But what I was interested in was the assumptions had purloined from government sources (p. 25):

  • The value of a statistical life is $4.5 million;
  • The life years conversion factor is 0.10 for over 70s and 0.55 for under 70s;
  • The cost of an illness is $4000;
  • The cost of a hospitalisation is $30,000.

The value of a statistical life!

A précis of that report was linked to in an article of Michael Riddell’s Croaking Cassandra blog, Coronavirus economics. But there was another section of Riddell’s article looking at an unpublished (as yet) economic analysis that took a different bite at the cherry.

This analysis was performed by one of New Zealand’s leading academic economists, Professor John Gibson from Waikato University, and he decided to look at the Lockdown policy from the POV of how it might affect population-wide life expectancies in NZ.

The flu kills about 500 New Zealanders a year but it can kill more in a bad season like that of 2015, when 767 died from it. A season worse than that would be “flu shock” and Gibson picked a figure of 875 for that edge-case scenario. That produces a reduction in life expectancy of 0.14 years across the whole population.

Ten such shocks would therefore drop it by 1.4 years: that’s 8,750 dead people, which is in the range of the middle scenario of the Otago model for COVID-19 deaths.

In other words, in saving all those lives the lockdown could be expected to prevent the population life expectancy from dropping by 1.4 years, and more again if the third scenario of 14,000 deaths eventuated.

But at what cost? We’ve allowed ourselves to be bullied by shroud-wavers talking about preferring to make a buck over saving the lives of old people. But that’s a false choice and an emotional weapon wielded by people who don’t want their solution to be questioned. The fact is the lives will be lost as a result of the lockdown.

It turns out that life expectancy in New Zealand is more sensitive to changes in real income than is so for many countries.

In other words, a ten percent decrease in real per capita GDP reduces life expectancy by 1.7 percent. The most recent period life tables for New Zealand report that male life expectancy was 79.5 years and female life expectancy was 83.2 years, so 1.7 percent of the average of those two values is 1.4 years.
 

In other words, if real per capita GDP in New Zealand falls by ten percent due to the lockdown and other effects associated with Covid-19, life expectancy would be predicted to fall by 1.4 years.

And we could be looking at an annual GDP drop of more than 10%. By contrast, even going by the real worst-case death rate of New York City, currently 1,085 deaths per million, we’d be looking at a life expectancy drop of 0.93 years.

So even in that highly unlikely example the lockdown solution would still result in reducing life expectancy by an extra 0.5 of a year. The apparent kindness of doing everything possible to limit deaths due to Covid-19 would, instead, be killing more people by making them poorer.

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And we may not need to dabble in such statistical comparisons of invisible deaths anyway. As this article by six American doctors points out, the US hospital system has been so emptied out that doctors and nurses are being laid off and furloughed in droves:

Almost every hospital outside of the hotspots is empty. The dramatic reduction in healthcare utilization and capacity is by no means limited to small, country hospitals. Mayo Clinic is empty: 65% of the hospital beds at Mayo Clinic are empty, as are 75% of the operating rooms. This is the world’s premier medical center. If Mayo Clinic is empty, imagine how dire the situation is at smaller, community-based healthcare centers. Given the complexity of the patients referred to Mayo Clinic, its emptiness alone will have a significant negative impact on healthcare outcomes.

Same with this article written by Dr Scott W. Atlas, of Stanford University Medical Center:

Most states and many hospitals abruptly stopped “nonessential” procedures and surgery. That prevented diagnoses of life-threatening diseases, like cancer screening, biopsies of tumors now undiscovered and potentially deadly brain aneurysms. Treatments, including emergency care, for the most serious illnesses were also missed. Cancer patients deferred chemotherapy. An estimated 80 percent of brain surgery cases were skipped. Acute stroke and heart attack patients missed their only chances for treatment, some dying and many now facing permanent disability.

Same in Britain:

It’s chilling to know that many hospital wards, waiting rooms and car parks are now empty. Before this country was hit, only 800 of the NHS’s 4,125 critical care beds were vacant at one time. Now it’s 2,300. Even with some of the worst fatality rates in Europe, some hospitals now report being half empty since they paused almost all non-emergency work.

Richard Sullivan, a professor of cancer and global health at King’s College London, says: The number of deaths due to the disruption of cancer services is likely to outweigh the number of deaths from the coronavirus itself over the next five years. Cancer screening services have stopped, which means we will miss our chance to catch many cancers when they are treatable and curable.

And there are almost certainly deaths happening right now because of the focus on saving people from COVID-19:

Accident and Emergency chiefs in London are concerned that more people are dying of non-coronavirus-related illnesses than normal because they are reluctant to leave their homes and be a burden on their local hospital. They believe there has been a ‘sharp rise in the number of seriously ill people dying at home’. They report that dozens more people than normal are dying at home from cardiac arrests, for example, presumably because they do not want to impose upon our locked-down society and what is continually presented to us as a busy, stressed-out health service.

Spain:

In Spain, health investigators found a 40 per cent reduction in emergency procedures for heart attacks at the end of March compared with a normal period.

Australia:

there has been a ‘drastic drop’ in cancer and heart-attack patients presenting to the health services. In Victoria, health officials report a 50 per cent decline in new cancer patients and 30 per cent decline in cardiac emergencies. It is now feared that ‘coronavirus anxiety’ could lead to ‘more deaths from cancer and heart attacks’.

And back to NYC:

The New York Times published a piece on 6 April headlined, ‘Where have all the heart attacks gone?’. It was written by a doctor who likewise described hospitals in the US as being ‘eerily quiet’. He has heard from colleagues who are seeing fewer patients with heart attacks, strokes, acute appendicitis and acute gall-bladder disease than they would normally see.

In Britain at least they appear to have asked the question:

Matt Hancock, the health secretary, refuses to give a figure for the potential non-Covid fatalities from this catastrophe but the cabinet was told it could be up to 150,000 avoidable deaths.

I’ve seen no evidence that we asked that question of our public health experts, either inside government or outside. It cannot be possible that the same deaths are not happening here. We’re just not seeing them widely reported in the MSM or announced in the PM’s press conferences.

The Russell Kerfuffle

As readers know I try to ignore much of NZ politics, but obviously the current situation forces attention to be paid. So I see that my No Minister colleague, Gravedodger – he of extreme Chinese Lung Rot risk – has already penned an OpEd on the question from Labour MP Deborah Russell.

However, our comment section structure is primitive, so I will put my thoughts on the matter here.

Her question – more like a comment actually – came during one of the online Q&A sessions with senior government Ministers:

“Yeah, so Minister, moving on from that, I’ve got a series of concerns around small and medium business, and it sort of strikes me, there’s a couple of issues. The first is that we are seeing a number of small businesses really struggling, after only a few weeks in a pretty bad situation, which must speak to the strength of those small businesses going into this lockdown. It worries me that perhaps people went into small business, without really understanding how you might build up a business or capitalise it in the first place so you have the ongoing strength to survive a setback.

Aside from the prissy use of the word “offensive” – and god how I hate that term and wish the Right would not adopt its cringing whininess – what was really annoying about Russell’s comments was the sheer cluelessness of them.

To be fair I don’t think she was being mean or dismissive or nasty. The tone of her question was one of genuine concern for SME’s in the current environment of lockdown.

No, her problem is exactly what Bob Jones spotted:

What Deborah lacked was awareness of the facts underlying small businesses

To whit, this is not …”a pretty bad situation”… or “a setback”. Such things might be a 10%, 20% or even 50% drop in revenue or some other similar proportionate reversal in the fortunes of a business.

No, this is a 100% drop in revenue for a month or more.

And while it’s accurate observation, Russell is hardly the first person to notice how undercapitalised SME’s are while they struggle to grow. It’s why banks and other lenders demand collateral in the form of business owners private houses. And it’s true that there are some SME owners who plunge in with wonderful expectations of the service or goods they’ll provide to an eager consumer base, but with not much of a business or marketing plan or solid financial analysis.

But this is an event that pushes far beyond the boundaries of even those risks.

Too Big to Fail (2011)Even large firms with capital would struggle in that situation and they would fall back not upon capital but upon the old-fashioned strategies of severe cost-cutting and firing staff, plus a begging visit to their banks.

There is almost no amount of capitalisation or building up of the business that could survive such a thing.

The difference is that the bigger you are the more sway you have with banks, debtors …. and government. The phrase “Too Big Too Fail” that became so well known during the GFC does not just apply to banks.

Over on Kiwiblog erstwhile National Party man – and SME owner himself, Tony Stuart, lays out the realities in detail in this comment:

Small business was already struggling with a declining economy, as demonstrated by the December quarter GDP growth figure, where, in what should be the busiest quarter of the year, the economy grew just 0.5%. That’s half the level of the corresponding quarter in 2018. 

Many businesses will not survive this “setback”, especially those in the tourism and hospitality sectors, and those who service them. The owners of those businesses will have the trauma of letting valuable staff members, many of whom have become friends, go and of losing everything they’ve invested into their businesses. In many cases, that will be a life’s savings, or even equity in the family home.

And then there’s this comment from Russell:

And I link that in some ways we’ve had quite a low wage economy, so it looks like it might be better being off in business, rather than working for a low wage….”

Sure. We are a low wage economy but as numerous economists have pointed out the key to that is our abysmally poor rate of productivity growth over many decades, something not addressed by either National or Labour-led governments. Few things irritated me more about the Key government than its constant boasting of annual GDP growth of 3%; with a population growth of 2-3% per annum only a Soviet economy could have produced less than 2-3%.

But I can see where Russell is going with this: from the happy days of 1940’s-1970’s New Zealand we had Big Private Business and Big Government Business and Big Unions and Big Government defending solid wages and wage growth we have been cast by Rogernomics into the spiralling hell of dwindling wages and salaries that have forced people to try and eck out a living as a small business, only to find that that doesn’t work either. They were deceived into thinking they could do better.

Stuart puts some perspective on that strawman:

As for the notion that people go into business to earn better wages, it might sound good in principle, but for many business owners it’s far from the reality. I know from our own businesses that there are times when we haven’t paid ourselves, because we had to pay the staff first. And Dr Russell’s comments don’t take into account the hours business owners work; on an hourly basis, my wife and I often earn less per hour than most of our staff. A recently-bereaved friend owns an essential business; she is regularly working to well past midnight, because she cannot afford to pay the staff to work extra hours, that’s if she can get the qualified staff her profession requires.

Every SME owner I have ever known knew that going in. But they hoped that with time, effort, energy and perhaps some luck they could turn their small business into something bigger and more robust and finally start making some decent money from it – perhaps almost as much as that job they quit. The mistake I’ve seen commonly made is thinking it’ll happen faster than it does.

But for many, if not most, it is not money that led them into such a world. It was the simple desire to be free of having a boss. As Jones puts it:

Whether a farmer, cafe-owner or self-employed plumber, the driving force behind most small businesses is the dignity of self-employment. For some people (me for starters) that’s a huge factor overwhelming any other consideration.

But the final thing that bugged me about Russell’s comments derives from the fact that SME’s provide the bulk of employment in NZ. A world that imagines them being a much smaller part of the economy than they are – perhaps as a result of tougher regulations around financing business start-ups – is also a world that has not answered the question of what other businesses will soak up all those workers?

I’m sure Russell must know this, I’m sure her answer would be that throwback to Old Zealand, and I’m sure many Labour and Green voters support that idea.

But I think there’s something else going on in that sophisticated brain. I’ve lost track of the number of left-wingers I’ve met who have always been dismissive of SME’s, even when they’re started by some member of the working class – plumbers and other trades being classic examples. Apparently this is the key point marking them off as no longer members of the Working Class or The Toiling Masses and instead members of:

The ruling class is the one that owns the means of production.

Yes, the average SME owner trembles with delight at knowing that they’re a member of the ruling class when the means of production they own is largely themselves!

It’s a determination to focus on that pure definition: that pure world of Capital Employing Labour, even though anybody with eyes can surely see the difference between such little businesses and Ford Motor Company and their ilk. I don’t know how big an SME has to get before I’d be willing to start calling them a member of the ruling class that owns the means of production, but even them having a Merc and boat in the driveway wouldn’t do it for me.

Whether it’s ideological purity or that they just don’t think SME’s are useful in NZ and therefore would like to see fewer of them, the result is their faith in the model I described above of Big Business + Big Government + Big Unions.

Deborah Russell would much rather deal with a few Ford Motor Companies in NZ than thousands of these little SME pains in the neck. Personally I don’t think that’s a practical solution.

Written by Tom Hunter

April 23, 2020 at 6:09 am