Kiwi News and Views

As a momentous, historic weekend in US politics unfolded, analysts and commentators grasped for precedents and comparisons to help explain the significance and power of the choice Joe Biden had made. The 46th president had swept the Democratic party’s primaries but just over 100 days from the election had chosen to stand aside.

Some talked about Lyndon Johnson, who had initially wanted to run for another term in 1968 but a surprisingly slim victory in the New Hampshire primary and deteriorating health made him change his mind and pull out. But that was before most of the primaries, seven months before the election. Others talked about Harry Truman, who pondered another run in 1952 and even put his name on the New Hampshire primary ballot. But advisors convinced him he was too old and unwell to continue.

So both share similarities with Biden’s decision, but neither made their call as late or as dramatically as Biden.

“There is no direct historical analogy that I’m aware of,” said Russell Riley, a presidential historian at the University of Virginia, told the Washington Post.

Well, not in America. But there’s a recent one here in New Zealand. Not exactly analogous, of course, but pretty close. It’s the story of a man, a loyal servant of his party, who read the polls, the mood of his country, and recognised that in “putting people first” it was his duty to stand aside (however reluctantly) for a new generation. He stood down for a younger woman, his deputy, and a candidate who would break barriers just by standing. The man won praise for a “selfless masterstroke” putting country and party first.

I’m sure you get the comparison. In 2017, Andrew Little stood aside for Jacinda Ardern. In 2024, Biden has now stood aside, endorsing vice-president Kamala Harris. Events in the first 12 hours after his announcement have made it very unlikely any serious competition will stand against her. So commentators are now grappling with whether Harris has it in her to seize her moment, just as many of us watching Ardern’s rise to leader wondered if she had it in her to turn around National’s double-digit poll lead.

The answer here was “Jacindamania”. As Labour’s youngest ever leader, the 37 year-old held a stunningly impressive first press conference, told a breakfast TV host to butt out of women’s reproductive lives and harnessed a “mood for change”. Ardern failed to win the popular vote, but Labour’s surge and coalition partners meant she won power.

There are lots of reasons why the late resignation of a leader here in New Zealand may not have the same impact in the US. For one, Ardern an Opposition leader up against a tired, third term government. Harris, 59, has to defend an incumbent government, which has become poison in these fast-changing, polarised times.

But already there are similarities on many fronts. Harris moves centre stage with many in her own party harbouring serious doubts about her electability. Some talk about her  “uneven history as a campaigner”. Others have described her as a “promising” politician who flamed out on the national stage. Others still, a politician who knows what she knows but is weak on some cornerstones issues, especially the economy.

Ardern faced just those criticisms, and in both cases they aren’t without some merit. Harris and Ardern were both flawed candidates in some similar ways; both experienced yet somehow under-prepared, both people who wrestle with their own self-confidence, and both measured politicians who seem to act more on caution than on vision. Both have struggled with what these days is called “delivery” when in power.

But sometimes a moment propels a person and a person can capture the mood of that moment; sometimes not having too long to prepare allows a person to be authentic and inspirational in a way they never could have if they had more time to think; sometimes just by being someone else they become precisely the person the public wants. Dismiss it as “stardust” as some did in 2017, but that won’t stop them winning.

Harris has the potential to speak to a better future, in a way Ardern did, contrasting with familiar, older, male opponents. She has the potential to connect with younger voters just as Ardern did. And just by being something new, she can shake the cobwebs off what people thought they had to choose between at the election. Just like Ardern did.

Immediately following Ardern’s election as Labour leader, the party was swamped with donations, peaking at $700 per minute. In just seven hours after Biden stood aside, Democratic online fundraising platform ActBlue raised US$46.7m, mostly from small donors. Democratic-aligned analysts spoke on-air of a phone call organised Sunday (UST) by the Win with Black Women network. A thousand women had been expected to join the call. More than 34,000 called in (some sources say as many as 40,000).

Former advisor to President Barack Obama turned commentator, Van Jones, said on CNN, that he had his doubts about Harris even in recent weeks, but in just 12 hours the public response to her had changed his mind. “I’m watching a rocket take off,” he said. Yeah, we’ve seen that here in New Zealand, I thought.

So soon after Biden’s big call, there’s no way of knowing if Harris will be able to follow Ardern’s path to victory. But the comparisons are clear and worth considering. It’ll be fascinating to see whether Harris can manage her launch as well as Ardern did and capture the public’s imagination in the same way. To see whether Kamalamania will capture the US in the short months until election day.

 

The Minister of Housing’s ambition is to reduce markedly the ratio of house prices to household incomes. If his strategy works it would transform the housing market, dramatically changing the prospects of housing as an investment.

Leaving aside the Minister’s metaphor of ‘flooding the market’ I do not see how the announced strategy is going to quickly resolve New Zealand’s housing problems.

His strategy seems to have evolved over the last five years following the establishment of the Ministry of Housing and Urban Development and is much the same as a Labour Government would have proposed, point-scoring and minor differences aside.

Supply-side initiatives take time. It is not like the Reserve Bank changing the Official Cash Rate, with an immediate impact on financial markets which works its way quickly into the new mortgages and mortgage renewal markets.

We are currently adding about 30,000-40,000 dwellings a year to the housing stock. (There will be more new ones since some will replace demolished dwellings.) Suppose we add an extra 10,000 a year. That would not only be a strain on the building industry but the Reserve Bank might feel it necessary to further restrain the economy. Given there are over 2 million houses the additions to the total stock would be about 0.5% a year. Is demand so elastic to such a small change in supply? (For a review of the changes in the intercensal housing stock see here.)

In any case, it is unlikely that the announced changes will produce a sharp increase in the supply of new buildings. It is not just a matter of putting up a shed on new piece of land. There is the accompanying infrastructure including water and roading. That in will take time to be installed, even if the local authority is enthusiastic. So the strategy is about the long term and not ‘flooding the market’.

The Minister’s strategy includes a long-term target of the price of houses costing ‘three to five’ times (annual) household incomes. ‘What I want is for house prices to moderate over time, so that in 10 to 20 years’ time, we have essentially gone a long way towards solving our housing affordability problem.’ Currently the multiple is 6.6 nationwide. In Auckland it is 8.1, Wellington 6.1, Christchurch 5.8, Hamilton 6.6, Dunedin 5.7 and Queenstown-Lakes almost 15.

So the Minister wants a cut in the relative price of housing of between 25 percent and 55 percent. That does not mean he expects the nominal price of houses to fall 25 to 55 percent, a reduction which would cause widespread financial distress (particularly if it was to happen rapidly). Rather, the Minister is hoping that nominal incomes will rise faster than housing prices over the long term.

To make rough sense of it all, suppose he envisages a 40 percent relative cut in house prices in fifteen years (the Minister’s midpoints). Allow inflation at 2 percent per annum and real incomes to rise their long term average of 1.5 percent p.a.. Now suppose the average price of a house is $1m. (Quotable Value thinks it is about $900,000 but the million keeps it simple.) The 6.6 ratio would mean an average household income about $150,000 p.a. (Which is also a bit high – this is an illustration). In fifteen years’ time, under those moderate inflation and growth assumptions the household is likely to be earning about $250,000 p.a. The ministerial ambition for the ‘four’ ratio means the price of housing will still be $1m (i.e. four times $250,000). So the Minister’s target means that there will be no nominal capital gains in house prices for a long time to come.

You can fiddle around with these assumptions, but realistic alternatives suggest that, under the Minister’s ambition, capital gains on housing will be negligible and house ownership will be a poor investment prospect. For most people home ownership will make still make sense, even though they will make no capital gain when they sell (for neither will the next house they buy have gone up in price). However, treating your house as a financial investment or investing in property may not make as much sense.

Of course, it is only the Minister’s ambition. He won’t be the Minister of Housing in fifteen years. But he can be held to account while he is. Will housing prices be stagnant on his watch? In my judgement the proposed measures will not be sufficient to attain the ambition. My guess is that a serious effort to restrain house price rises will also require further fiscal and monetary measures.

Since the cost of building houses and providing infrastructure will go up with inflation, the value of land will fall under the Minister’s scenario.  That seems very unlikely. In the more stable past, house prices have rise a few percent annually faster than consumer prices. What the reverse would mean is difficult to analyse but there would be a very different housing and investing world from the one we are, or were, used to.

So will housing prices stagnate to the extent of the Minster’s ambition or will they rise much like they did in the quieter past. Your guess is as good as mine, but I shall be surprised if they stagnate. I am not holding my breath waiting for the flood.

I can’t say I’m shocked. As the US news networks offer rolling coverage dissecting the detail of today’s shooting at a Donald Trump rally in Butler, Pennsylvania, and we hear eye-witnesses trying to make sense of their trauma, the most common word being used is shock. And shocking it is. That someone should try to shoot dead a candidate in a democratic election in the developed world in 2024, as it seems happened just outside Pittsburgh today, is thankfully incredibly rare. It is therefore by definition shocking. And not just in the “surprise” meaning of the word, but also the “disgust” meaning. We should all without hesitation say violence has no place in democratic contests. Elections are battles of ideas, not of bullets.

However, that doesn’t mean anyone closely following US politics in recent years will, in their heart of hearts, be surprised that the violent rhetoric and protest has been upgraded to what is being investigated as an assassination attempt, and turned on a presidential candidate.

We reap what we sow and the bitter division and cynicism apparent in America’s public debate has been all too obvious for some time.

The Pew Research Center does remarkable work capturing the heartbeat of the nation and in September last year it reported only four percent of American adults believe their political system is working extremely or very well; only a quarter think it is working even “somewhat well”. The same survey showed 55 percent feel “angry” when they think about politics. So how surprising is it that one of those angry people picked up a weapon, found a rooftop, and decided to express that anger down the barrel of a gun?

Even in 2020 as President Joe Biden was stressing in his first speech as president-elect that he was committed to bridging the deep divisions in American society and uniting its citizens, Pew wrote “Americans have rarely been as polarized as they are today”. Covid, fragmented media, the two-party system, identity and religious politics, and the demonisation of people we disagree with… those are just some of the seeds sown that led to the sort of violence we’ve seen today. I’m sure you can name others.

The last time America saw these sorts of divisions was at the height of the civil rights  and Vietnam War protests in the late 1960s. One Trump supporter at the Butler rally told CNN he was reminded of 1968. That was the year both Martin Luther-King and Robert Kennedy were gunned down. As of June 30, 8,539 Americans have been shot dead this year. And it was only at the start of this presidential term that that US Capitol was attacked in an act of political violence.

So no, today’s shooting is not surprising. History itself has been warning us. And, as horrible as it is to write, it only make more violence this year more likely. (It’s worth noting with the Republican Convention starting next week and the Democratic Convention due in August, that 1968 was also the year the Democratic Convention in Chicago was the scene of violent street clashes between protestors and police).

So what impact will this have on November’s election? Social media posts are declaring all the reckons you might expect. Trump has become a martyr and the election is his. Trump is a victim of his own violent rhetoric. Democratic attacks on Trump comparing him to Hitler are the cause of this shooting. Republicans who excused the attacks on the Capitol must accept blame… and on and on.

The truth is no-one can know for certain how US voters will respond to this. Those already committed to one side or another will probably see their opponents as the sowers of what we reaped today. At most, 20 percent of voters are undecided, and when you boil those down to swing states, and beneath that key counties, the election is still likely be decided by mere thousands of voters.

Even as our understanding of what happened is still unfolding, I’m confident the influence today’s events have on the election result won’t be decided by the act of one shooter, but rather by how the parties and politicians respond to today’s violence. Those swing voters will be moved by the reaction as much as the action. It could be independents swing behind Trump as a martyr. But it’s just as possible they turn to Biden, as a more moderate and conciliatory candidate. It could be one party or another over-reaches in the emotion of the moment.

Perhaps the best hope we can have today is that the loudest voices over the coming weeks are voices of reason and unity. That those who try to use today to sow yet more division and discord are ignored or challenged. That America– to borrow a phrase from Abraham Lincoln, a man who knew a thing or two about bringing a country together and the deep tragedy of political violence – instead turns to “the better angels of our nature”. Perhaps we can dare to hope today that this is a wake-up call for those dividing America and a chance for the country to find common cause in its prayers for peace and reconciliation.

Midway through the news conference that many American political commentators had built up as critical to Joe Biden’s re-election chances, the US president said European leaders are not asking him not to run for a second term, “they’re saying you gotta win”.

The problem for Biden and his advisors is that many American voters – regardless of this press conference or that debate – are concerned that to ensure the latter, Biden has to accept the former. That ‘you gotta win’ is in fact code for ‘you gotta stand aside’ because Americans are losing faith in his ability to serve as president for another four years.

The Friday press conference (NZT) lasted nearly an hour and Biden spoke strongly. His grasp of history, details of his recent meetings, economic figures, casualty numbers and more were impressive, especially in contrast to the CNN debate two weeks ago, which he today called his “stupid mistake”. Foreign policy has always been his strong suit.

But there were still slips. He spoke about “Vice-President Trump” when talking about Kamala Harris, without recognising his error. He said he was getting advice from his Commander-in-Chief before correcting himself, saying he meant his Joint Chiefs of Staff.

Biden though was dismissive of public concerns, declaring he’d only stand aside if people could convince him he had “no chance of winning”.  (Which is a step down from last week when it was only the Lord Almighty who could convince him). In this press conference he said the only question that matters is “Am I getting the job done?”. He quite reasonably pointed to a successful NATO summit and new economic figures showing overall prices coming down for the first time in four years as signs he’s doing the business. This press conference affirmed that this is a man who wants to stand on his record and his ability to build consensus. He said he had decided to stand for a second term because he’s not only the best qualified to govern, he’s the best qualified to win. And nothing had changed his mind about that.

Biden’s problem is that while his mind may be set, voters’ minds are in flux. This press conference or the next one won’t make them forget his incoherent debate night. Biden’s capability as an 81 year-old – and an 84 year-old before the end of a second term – has been simmering as an issue with voters for some years, but now the cat is out of the bag and is the dominant issues of the nascent campaign. Voters are now primed to watch for every memory lapse or slip and even as new issues arise, his mental agility and ability to lead will put the Democrats’ chance of winning in jeopardy.

The night before this press conference a Washington Post-ABC News-Ipsos poll showed Biden and Trump neck and neck in the popular vote, both on 46 percent. But 67 percent of those polled and even 56 percent of Democrats polled said he should “step aside and let someone else run”. Many voters are desperate for a candidate – any candidate – who can string a sentence together and isn’t breaking record as the oldest presidential candidates of all time. More Democratic politicians are expected to call for him to let someone else run now that the NATO summit is done.

As much as some are talking about a unique moment in history, US politics always rhymes with the past. There has been another time, for example, when the Democrats had a president approaching a convention and nomination in a perilous state of health. People around him noticing his flagging energy and lapses in concentration. Questions about what the public have been told and a vice-president’s capabilities. A war and serious global threats hanging over it all.

In 1944 Franklin D. Roosevelt – who had battled polio for more than 20 years – was suffering with heart issues, bronchitis, and exhaustion but still accepted the Democrat’s nomination for an unprecedented fourth term, ran and won in November.

He did what he could to fight his condition and hide his ailments, but died in April 1945, early in the new term. It’s a sobering thought. And Biden cannot hide his issues in the way Roosevelt (or Kennedy or Lincoln) did. Even though he has done roughly half as many press conferences as Barack Obama at the same stage of his first term and is carefully managing his public appearances, he can’t hide the toll age his taking on him any more than he can control the memes on Instagram or flood of images on X.

Yet this is not a campaign the Democrats can afford to be about Biden’s age. Or one they can afford to risk out of deference for Biden’s status in the party. For all the difficulties of recent years, it’s worth saying out loud that the Democrats should hose this election. The economy is recovering, as data is starting to show; they have a push-button issue in abortion to get out women and independent voters; and the Republicans are about to nominate a candidate who has not only lost the last three elections he has stood in or tried to influence, he’s a convicted felon. The Dems should win comfortably.

Biden himself has warned the world of a potential Trump dictatorship as Trump has toyed with that word in speeches. Biden has said Trump embraces political violence and another Trump presidency would imperil many US political institutions. “We can’t let that happen,” he has previously said.

The concern for the Democrats and those around the world who fear what a second Trump presidency would mean for US and global democracy, is that they agree with Biden’s words that Trump must be beaten at all costs, but less with his words that he is best qualified to do it. Biden’s mental capacity is now on the ballot, so the question becomes political. It’s no longer whether Biden is doing the job, it’s whether Democrats think enough voters will hold their nose and tick Biden anyway or whether a new name on the ballot is needed to win. And with the party’s nomination due to be decided on August 5, they only have a few weeks to decide.

Whether Britain leaving the European Union was right or wrong, good or bad is for the Brits to decide. But there are lessons about international trade to be learned from Brexit, especially as it is very unusual for an economy to break so completely from its major training partner.

In Econ101 we are taught Ricardo’s theory of comparative advantage. In summary it says that specialisation makes economic sense; that it is a good idea for you (or a country) to do what you do best and trade the surplus for something you want from someone else who (or other country which) does it comparatively better. An economist then spends the rest of her or his life exploring the caveats and subtleties of the theory when it applies to the real world. It’s not logically wrong – it’s just that the real world is more complex.

For example, there are transaction costs in trade. I wrote a book, Globalisation and the Wealth of Nations, which explored the consequences of the costs of distance – transport, inventory, information … Standard trade theory was not a lot of help. It is a static account of the economy and when we measure the allocative gains from trade we get a small percentage increase. (Which, not incidentally, is why is was so hard to find the promised gains from Rogernomics.)

Yet the evidence points to economies thriving with international trade (although not necessarily everyone in each country). In the end I concluded that the growth came not just from the specialisation but was reinforced by economies of scale and economies of agglomeration, and by competition which stimulates innovation and competitive advantage.

This conclusion is orthodox. The book’s twist was to highlight the costs of distance. Think of them analytically as a natural tariff. As these barriers to trade decline, economic growth is stimulated. (The same happens between regions within a country.) The distance costs have fallen dramatically over the last two centuries and driven globalisation – increasing interconnection between economies. (Since they wont fall as much in the future, we are likely to see some slowing down – even stagnation – of the globalisation of the markets for goods. However, service trade is likely to continue to grow as information technology transfers becomes more efficient.)

So it is no surprise that the British economy has suffered from the rise in the barriers which resulted from the withdrawal from the European Union. The UK government’s Office of Budget Responsibility calculated that Brexit is costing 4 percent of GDP over the long term – that adds about three years of stagnation to the British economy. That is probably an underestimate because the dynamic effects are almost certainly greater. (Both investment and skilled labour have moved to the continent to avoid the barriers.)

Many of the barriers come from the fact that the two regimes no longer have the same regulations. The difference has resulted in increased documentation and phytosanitary requirements (measures to eliminate the spread of diseases transferred through livestock, plants and such like). Part of the point of the withdrawal, as far as the Brits were concerned, was to allow them to pursue their own regulatory regime because, it was argued, Brussels was too intrusive. (Some of the alleged rules, like how bent bananas could be, were very funny and entirely fictitious.)

The move to common regulation was the result of the 1992 Maastricht Agreement which aimed to convert the European Community (as it was then) of a multitude of markets into the single market of today’s European Union. (Just as we do not have different regulations between the North and South Islands.) There is a sense that the Brexit vote was a rejection of the transformation of the EC (which they joined in 1973) to the EU which they left in 2020. (I am not discussing here how badly the withdrawal was handled.)

What surprised me was how onerous and complex the regulatory barriers have been – how damaging they have been to trade and economic growth. It has not just been the queues of lorries awaiting documentation clearance at ports like Dover – vivid illustrations that they are. The delays have resulted in some British producers of fresh products where time is critical – like fish and flowers –giving up exporting to the EU altogether.

Sometimes the amount of documentation – pages and pages of it – has been extraordinary. I don’t think the EU is being bloody minded, although Brussels can be clumsy. Perhaps over time they will simplify their requirements and so will the Brits. Which means that there will be increasing regulatory alignment, which Brexit was trying break away from.

There is a lesson here which the Brits may yet learn. While one may yearn for sovereign independence, whatever the de jure situation once there is an international relationship – in trade as well as a host of other areas like human rights and defence – de facto sovereignty is compromised.

The problem of these regulatory barriers arising from misalignment and documentation apply elsewhere in world trade; an exporter to multiple markets may have to meet quite differing requirements. There have been attempts to reduce the barriers, but multilateral efforts have been half-hearted. Free trade agreements increasingly pay attention to them.

There cannot be total regulatory alignment. Our negotiating partners know that our bottom lines include the provision that Te Tiriti o Waitangi is sacrosanct; it protects the Māori broadcasting regime from international investors.

One place where we can do better is moving the trade documentation onto an electronic basis. I do not know just how much that will facilitate our exporters and trade generally. But the lessons from Brexit suggest that it will, probably more than one thinks.

Were I a Brit, I’d favour measures which reduced these transaction costs even if the resulting regulatory alignment reduced the country’s economic sovereignty.

Footnote: A new area of regulatory alignment is likely to be about carbon emissions. The EU is already moving towards requiring those who export products to it from the ‘heavy’ industries – such as aluminium, cement, chemicals and steel – to meet the EU’s domestic carbon emission standards.

They have not yet begun addressing farm emissions of methane and nitrous oxide. But they will. Our farm sector needs to be preparing for that. Rather than the government imposing an emissions regime, it might tell them:

 ‘Over to you. If you don’t get on with developing your own strategy you will be one day be excluded from some of your valuable export markets. The government’s advice is to get onto it as fast as you can. Biological change takes time. Inconvenient regulatory can change a lot faster. The government will give you all the reasonable support you require.’

If you don’t understand how things work you make foolish mistakes. To explain how the government got into its cancer drugs muddle, we need to explain first how New Zealand’s pharmaceutical purchasing system works.

There is a parallel between Pharmac and the Reserve Bank of New Zealand. The Government sets the monetary policy framework with its legislation and the Policy Target Agreement (PTA) between the Governor and the Minister of Finance (plus some other minor matters, but they are all in public). The Bank then implements the monetary policy, independently of the Government. Which is a good thing, given how complicated the monetary system is together with the tendency of politicians, and others, to want to interfere for short-term purposes. (In the previous framework, Prime Minister Rob Muldoon would literally ring the Governor directing him to alter the monetary settings for political purposes, such as impending by-election.)

Similarly, Pharmac implements the Government’s purchasing of pharmaceuticals within a statutory framework. It includes the prior institution, Medsafe, which determines whether a drug is safe, although that says nothing about its effectiveness. That Medsafe decides a drug is safe does not automatically mean the pharmaceutical is available free on the public health; if it is not, it can be used in New Zealand but must be privately purchased.

The equivalent of the PTA is that each year Parliament votes a sum which Pharmac uses for its total pharmaceutical expenditure. Like everything else to do with the public health, there is never enough. So Pharmac tries to purchase drugs as cheaply as possible. Where a drug is off-patent and there is competitive supply, it seeks the cheapest high-quality supplier. An individual tablet may cost only cents (like paracetamol before the retail markup).

In order for Pharmac to fund a medicine, it needs:

– to identify a clear health benefit for New Zealanders;

– a deal with a medicine supplier;

– enough money in the budget to fund it this year and in future years;

– and to have consult on the proposal with everyone who as an interest.

Once these align, Pharmac can work quickly to fund the medicine.

Most of the drugs which Pharmac funds are off-patent. However, most of its expenditure is on drugs which are on-patent and supplied by a single Big Pharma (although sometimes there may be close alternatives). They are very expensive because of the patent monopoly. It is there to provide Big Pharma with the incentive to develop new drugs. (A common figure mentioned for the cost of development of a drug is a billion dollars, but there is a lot of variation, and many potential drugs prove ineffective which may mean the development costs are wasted.) That means there is a big margin between the cost of producing the drug and the price that the Big Pharma thinks is justified by its investment.

The margin varies by country. For instance, HIV-Aids medication is supplied cheaply to poor Africa. I do not discuss the issue further; it is quite complicated. What is relevant here is that the margin means that Pharmac has the opportunity to beat the price down from the top rate the Big Pharma charges (typically to the USA).

Big Pharma loathes the arrangement. (What if every country in the world followed this practice; it is unique to New Zealand?) They have even tried to abolish Pharmac in trade deals we have negotiated (particularly with the US). New Zealand has been staunch because the effect could be close to doubling the cost of the public pharmaceutical budget.

Those negotiations can be fraught given that they are between a monopsonist (single-purchaser) Pharmac and a monopolist (single supplier) Big Pharma. For obvious reasons they are commercially secret. Or rather, I thought it would be obvious; I presumed that was the reason that there was no explicit provision for the costs of additional drugs in the May budget. At the extreme, if it was stated $1m had been set aside to purchase drug X, you don’t have to be very smart to work out what Big Pharma would do. (In their turn, Big Pharma don’t want any other country to know what prices they are charging New Zealand.)

However, the negotiations aside, the great problem Pharmac faces is which drugs to fund, given its limited budget. Some drugs are going to miss out.

I shan’t go through the full evaluation procedure but an economist might summarise it as Pharmac trying to get as much bang as it can for each buck – the economist’s ‘bang’ is usually measured in years of quality life. (For other considerations see here.) For instance, suppose Pharmac had to choose between spending the same amount on a cardiac medication which extended life for ten years and some cancer medication which extended life for ten months, most of us would think the choice is a no brainer.

Not everyone, because those suffering the cancer would still demand that their drug be funded. Very often they blame Pharmac, which is unfair because Pharmac is limited by the funds made available to it – to its ‘PTA’ target.

Gee, it has taken a lot of explanation to get to the most recent controversy – and I have left bits out. It is clear though that many who get involved in the pharmaceutical disputes have not understood even the above simplification.

Opposition politicians easily get swayed by public demands for a particular drug, making promises which in government are difficult to keep at the simplified level of their thinking. Hence the current fiasco.

After much political muddling (and, one suspects, a lot of hard administrative work) the government has announced it would give Pharmac extra funding of $604 million over the next four years to cover ‘up to 54’ new medicines including 26 cancer treatments. That includes all the 13 cancer drugs National promised during its election campaign, or replacements that are ‘as good or better’. Observe that the announcement gives Pharmac room to negotiate rather than be an easy walkover by Big Pharma. Moreover, it allows Pharmac to fund other drugs which it judges are as effective at improving quality of life of sufferers.

The funding comes out of the contingency operating allowance the budget provides for new policies and unexpected changes. That is exactly what the reserve is for, although I, among others including the Treasury, have expressed concern that the amount provided in the budget is too small. (here) It is now smaller.

The Labour Opposition joined the chorus pointing out the Coalition Government was failing to keep its election promises. Curiously, during the election campaign Labour failed to get across that the Ardern-Hipkins Labour Government had markedly increased Pharmac funding by more than 70 percent (excluding that for Covid), while Pharmac funding under the Key-English Government was near stagnant. The National-led Government’s recent policy announcement represents a major break from the earlier National Government.

Hopefully, that means it has come to grips with how Pharmac works and is committed to make it work, leaving Pharmac to make the technical decisions. There is always the fear that the Big Pharma will prevail and that Pharmac will be neutered, to the taxpayers’ cost.

The other concern is that it seems likely that we could get a better bang for our health buck by spending additional funds on reducing some of the intolerable waiting lists in the public health system. However, there are no ‘Big Pharma’ to stoke public indignation. And the contingency operating allowance is getting smaller.

Evaluating the impact of social policies will be very difficult but the government does not seem to be doing much real evaluation.

A couple of terms that have recently become fashionable are ‘cost-benefit analysis’ (CBA) and ‘social-investment analysis’ (SIA), typically proposed by people who have never done either. They sound good but have their limitations. Providing their limitations, are understood they can assist making better decisions. Too often they are ignored, and the resulting analysis has little value, merely reinforcing the conclusion that the decision-maker who commissioned the analysis was going to make anyway.

CBAs entered public policy in the 1960s evaluating the return on irrigation projects. (Locals, including their MPs, were very keen on the projects because they involved large government subsidies.) By the early 1970s they were being used by the National Roads Board to rank spending on roads. A decade later they had a central role in the Major Projects (‘Think Big’) debate. They were then necessary because the projects depended upon government subsidies and other kinds of public support.

The debate was traumatic; economists even lost their cool. Part of the problem was that we had to develop the analytic frame as we went along. (The only New Zealand manual we had was for irrigation projects – I am not making this up.) We economists made mistakes but any economic advice was usually overruled by the politicians who went ahead with even some known ‘dogs’. (Roger Douglas admitted he made wrong decisions – against advice – over New Zealand Steel.)

The policy conclusion was that government shouldn’t subsidise businesses, which explains many of the more sensible changes under Rogernomics. Unfortunately, politicians remain keen on incentives for political reasons and sometimes government involvement is unavoidable – like the broadband rollout and the current debate on the inter-island ferry service.

Moreover, the government is also involved in many decisions which are not strictly business ones. The social area exists as a public policy issue because it cannot be commercialised.

CBA/SIA has been most extensively used in the health sector. But note that once again the politicians have tried to overrule careful analysis, as when they announce they will fund particular pharmaceuticals. (The economic issue is whether the same funds could be spent more effectively – with better health outcomes – on other treatments; we don’t know unless careful analysis is done.) The application of these techniques in the health area is fraught with difficulties. I know, having worked on a number of evaluations in numerous areas and having been a member of an international working party which developed a manual on how to apply the techniques to the analysis of substance use and abuse (published by WHO).

That a manual is necessary was evident from a strange debate over the last published social cost of alcohol study which paid no attention to the issues the working party sweated over and did not understand them; neither did its critics.

The government has announced it now intends to apply Social Investment Analysis in areas such as education, justice and social services. It has even set up the Social Investment Agency to lead its use.

The idea began under the Key-English Government and was implemented under the Ardern-Hipkins Government as the Social Wellbeing Agency. For all the fanfare, sentiments, promises and expenditure, there have been few results to show SIA’s effectiveness.

Instructively, there is no published manual of how to do an SIA. The unwillingness to learn from past experiences or other disciplines is illustrated by the various contributors to Social Investment: A New Zealand Policy Experiment. So bereft were they of practical experience one is reminded of the joke that a consultant is someone who knows 69 ways to make love but has never kissed a girl.

Will the experiment be successful? The experience is that its success, if any, will be limited and hardly at all if there is no manual. There will be a host of undiscussed problems about how to construct the framework.

For instance, a key point in these analyses is what is the perspective of the study? How is success going to be judged? In the health sector we tell the story of the ‘exploding cigarette’, which is highly addictive, generating lots of tax revenue, but kills the person on the day they retire so the state does not have the subsequent health and retirement costs. From the fiscal perspective an ideal policy, except it has left out all consideration of the person’s welfare.

Before you say ignoring people’s welfare is absurd, the feedback I hear is that the government’s SIA focuses on the fiscal savings to the government. So the perspective is the taxpayer, with the rich benefiting more than the poor. I hope it is not true, for in every health evaluation with which I have been involved, the suggested treatment involved net public outlays in the long run because it was trying to benefit the sick.

I’ve given but one example of the minefields we found when developing the WHO report. They’ll all be there in an SIA ,and probably some more. Often there has been a shortage of quantitative evidence in the health evaluation projects with which I have been involved; sometimes that evidence is key to the assessment.

A major issue is, as the term ‘investment’ indicates, that the evaluation has a strong time element. (No, I am not going to go over the time-discount rate issue again – I think we got it wrong forty years ago, and we are still getting it wrong.) Rather, analysis requires evidence about policy impacts decades later. For instance, good nutrition for pregnant women affects the health of their grandchildren. (The mechanism seems to be that the health of the child in utero is affected, and in the case of a girl child, that will affect her children.) Most of that sort of evidence is not available for social service issues. (The health sector is much better provided with the required evidence than social services will be, but even then it is frequently lacking.)

The temptation is for the advocate – or the consultant advising the advocate – is to make up any missing numbers. Sometimes the policy conclusion hinges on their magnitude; you will not be surprised that there is an optimistic bias in their creativity. That bias will feed the politicians.

CBAs and SIAs only informed decisions. They are rarely decisive. The Coalition Government agreement said it will make decisions that are ‘principled – making decisions based on sound public policy principles, including problem definition, rigorous cost benefit analysis and economic efficiency.’ That was almost certainly written by someone who has never done a CBA.

In practice the government seems to be oblivious to the principle. most evidently in the justice area such three-month boot camps. The impression I get – I am not expert in the area – is that the evidence says they won’t work. Did the politician commission any SIA – let alone a rigorous one – before they directed the policy to be instigated? (Will they direct there be follow-up evaluations?) How many of the current government’s policies proposals have been made with the promised rigour? It would be useful if at each policy announcement a journalist asked to see the ‘rigorous cost-benefit analysis’.

SIAs could make a significant contribution to social policy if they got us to focus of the evidence to inform it. (In the health sector it is called ‘evidenced based medicine’.) I am not optimistic; it involves a massive change in the way we make public policy.

 Worst. Presidential. Debate Ever. President Joe Biden and former President have just squared off in the first presidential debate of the 2024 campaign and the rest of the world has watched in slack-jawed horror as democracy’s once “shining city on the hill” hit a new low.

The hyperbole in that introduction may go too far, but I’ve used it to match the tone of what was a remarkable – and remarkably bad – debate. If you want to see how the middle of American politics has broken and the language of extremes and outrage now holds sway, this was a startling piece of evidence. Throughout the night, both candidates reached for ridiculous claims and insults, struggling to answer questions coherently or offer any hope and vision to US voters. Trump was by far the worst offender, engaging claims that went beyond the now all too common cynical spin of modern politics into lies and fantasy; but Biden let himself down as well.

If you believe Trump’s wild and childish claims, military veterans are dying in the streets while illegal immigrants live it up in luxury hotels; military leaders “like me more”; he will end Russia’s invasion of Ukraine between election day and inauguration day, should he win; there was “no terror at all during my administration”; Biden will increase taxes “four times” over; America’s exit of Afghanistan was the country’s “most embarrassing moment” ever; and when he was president America had the cleanest water ever.

Trump’s arguments were one fantasy after another.

Biden, while much more restrained, also threw out whoppers, such as the claim Trump would “get rid of social security” and he’d done “more for veterans than any president in American history”. More of a concern, Biden started sentences he couldn’t finished, lost his train of thought, and looked every one of his 84 years. He shared his concern that Trump’s plan to introduce news tariffs would increase the price of “food, um, and all the things that are important”. At least twice he simply stopped mid-sentence, unable to find the next words. This is a president who has done his country a remarkable service seeing off the worst strongman, anti-democratic tendencies of Trump and his cronies, but we are already seeing reports that tonight’s performance has set off serious discussions amongst his party as to whether he can convince US voters he has four good years left in him.

I can’t help but think back to the eloquence and deep political cut and counter-thrust of debates under presidents such as Obama, Bush Sr, Clinton and others. Even Reagan in his failing later years didn’t struggle with truth and coherence like these two.

If you want to read the fevered temperature of American politics right now, you only have to have seen the minutes spent by the candidates arguing over each other’s golf game. There were whole chunks of the debate when the candidates returned time and again to not only golf swings, but who history will regard as the worst president, who is the worst felon (with Trump falsely suggesting Biden could be charged with crimes whenever he leaves the White House) and who is the biggest loser. Did anyone in previous presidential debates ever imagine a candidate for president – a convicted felon no less – saying “I didn’t have sex with a porn star”? And his opponent saying to him he had “the morals of an alley cat”. That happened today.

Make no mistake, I don’t want to give the impression of any false equivalency. A dishonest president is worse than a tired one. While much of the initial coverage will focus on Biden’s incoherent performance, we should not overlook or accept as normal Trump’s wildly dishonest effort. His lies – and his ego – were as far and wide as America’s great plains. He also meandered off topic and at times looked utterly unhinged.

The rest of the sane world has watched this debate in horror. Because it was a disaster for democracy. We have seen how far it has fallen in the country that claims to be democracy’s greatest champion. We are appalled and scared by what we have seen. That a second Trump presidency would be disastrous for the world is beyond doubt; that the Democrats have the ability to prevent it (something I have until today been very confident of) is now in doubt. This campaign hasn’t even really begun yet. But it is already one like no other, one that raises very real fears for the state of the United States.

Mainstreaming need not be inherently anti-Māori. It will be if it is done badly because it will be anti-those-in need, and proportionally more of them are Māori.

That the Coalition Government says it will deliver public services on the basis of need rather than, say, race deserves consideration, even though many will jump unthinkingly to the conclusion that it is anti-Māori. Such mainstreaming does not cover many issues dear to Māori, such as the promotion of te reo and Māori culture, the status and relevance of Te Tiriti o Waitangi, their role in the governance of the country and remediation of past wrongs. Discussion of these needs to take place, but not in this column, which is a reflection on the policy of mainstreaming.

Not that reflection is common in the dialogue about Māori issues. Statistics New Zealand reported that 19.6 percent of the population counted in the 2023 Population Census said they were of Māori descent. The proportion has increased over time, which is not surprising given that ‘intermarriage’ is common. (The quotation marks are to indicate that the parents are not always married.) Additionally, people learn about forgotten ancestors.

The census does not ask how many of us have European, Asian or Pasifika ancestors. (Its question is for the purpose of calculating Māori seats.) I suspect that if we could work it out, there would be many more New Zealanders with more European ancestors five generations back than with Māori ones.

It was also widely reported that 17.8 percent were of Māori ethnicity, so not all those of Māori descent describe themselves as of Māori ethnicity. Less prominence was given to the 67.8% who said they were of European (or Pakeha) ethnicity or the 17.1% who said they were of Asian ethnicity, 7.1% Pasifika and the 3.0% who said something else. Yes, they add up to more than 100% because people have multiple ethnicities. The cross-tabulations are yet to be published but they are likely to show that over half of those reporting Māori ethnicity also tick European ethnicity.

There is a tendency to report ethnicity on a prioritisation basis. First is all those who say they are Māori including those who tick other categories, then there are those who tick Pasifika but not Māori, as well as the other categories, then Asian on a similar basis, and then only European if they do not tick any other ethnic category as well. The practice can be very misleading. For instance, a high proportion of prisoners are Māori, but some of them – we do not know how many – will have ticked other ethnic categories. (The good news is that the proportion of young Māori who are imprisoned is falling. See here and here.)

All the evidence is that ethnic Māori are a very diverse lot. I add to it, by reporting how they list-voted in the 2020 election. [1] Just over half of Māori descent choose to vote in general rather than Māori electoral seats. They are included in these figures which like all survey results are subject to sampling error):

2020 List voting by Māori.

 (Percent Share of Total)

Labour

63.8

Green

7.7

National

7.5

Te Parti  Māori

6.8

NZF

5.4

ACT

4.0

Other

4.8

We are not surprised that almost two-thirds of Māori voted for Labour (half the country did), but the rankings of the parties below them are intriguing. The Greens were second; National was above TPM. Altogether, around a fifth of Māori voters voted on the right.

(The 2023 electoral data are not available yet and will report different proportions. I had a very rough shot at estimating the numbers. Labour’s share may have collapsed by a third – most, probably, went to TPM who came second behind them. National may have won more votes than the Greens. ACT’s share may have gone down. I’ll let you know when the 2023 data becomes available.)

The voting data confirms all the other evidence. Māori political views are diverse. Yes, there may be less variation within the group than in the population as a whole, but anyone who says they speak on behalf of all Māori is deceiving themselves, while almost all generalisations about all Māori are wrong unless there are caveats (an exception is that Māori are diverse).

That does not mean there are no tendencies. One is that on almost every socio-economic indicator the Māori population averages worse than the non-Māori population. (That is also true for Pasifika.)

That difference is cited to justify targeting public social services to Māori. The logic is not obvious. For instance, Māori are more likely to be poor than non-Māori. But there are more non-Māori who are poor. Poverty measures which target Māori may support Māori who are not poor (there are more of them than those who are poor) and fail to address the non-Māori poor who are worse off than the average poor Māori.

There is the logic of the Coalition Government’s mainstreaming policies. They have much in their favour but there are caveats. The biggest is whether the government policies will actually address the need rather than just offer pious promises.

or example, the Coalition Government mainstreamed Māori healthcare by abolishing the Māori Health Authority, Te Aka Whai Ora. The public disliked the institution; there was little enthusiasm for it even among Labour Party voters. Perhaps it was a lightning rod for the dislike of the health sector redisorganisation, which abolished the local DHBs replacing them with the centralised Health New Zealand. But the Coalition Government seems to have no idea what it was going to do instead.

Simple mainstreaming does not work if one group in the community is sufficiently different to require different delivery. For instance, those living in rural areas may have difficulty accessing the services that urban dwellers do. What if some Māori feel intimidated by what they see as Pakeha-dominated institutions? That may not be just a Māori problem; it may be that all those with low educational attainment find our medical institutions overwhelming. The Māori middle class may approach a hospital with the same confidence as Pakeha middle class do.

One sort of argument is that Māori poverty arises from different causes. There is a trope that Māori poverty is the result of ‘colonialism’. Whenever I have followed the argument, I have foundered on what ‘colonialism’ means and how it works its way through to lower incomes. I find the term is rarely defined and its meaning can shift from article to article, chapter to chapter, page to page, even sentence to sentence.

I am not unsympathetic to the notion of colonialism as a way of explaining the history of the first peoples. Unquestionably, they were disturbed by the later arrivals. But we need to be clearer.

For instance, the Musket Wars were very disruptive – almost certainly causing poverty to some – to Māoridom, but there were few Europeans in the country at the time. As the name of the wars indicates, the intruders were the guns. Was that colonial?

The New Zealand Wars led to land confiscations – there were fewer than we remember, but it was the best quality land. However, I attribute more damage to the 1865 Native Lands Act and its successors which aimed to individualise land ownership. Not only did they forcibly reduce Māori possession of land, which was the basis of traditional Māori social organisation, but they led to conflict among and within hapu and iwi, which further undermined Māori social organisations. The individualisation would have happened anyway, but it would have been less destructive if it had been at pace determined by Māori.

The Māori economy largely thrived before 1870s. It began spluttering not only because of the loss of land, but because most Māori were living on land which was unsuitable for sheep, when wool and (later) frozen meat were the economic drivers of New Zealand. John Gould’s observation of different average incomes by iwi is explained by observing that higher-income Kai Tahu benefited from the sheep boom because the South Island soils were not compromised. The slogan that colonisation caused poverty implies there was less colonisation in the south.

For the next hundred years, most Māori struggled in rural areas with poorer public services in areas as wide ranging as education and health and infrastructure. They were very badly prepared for their urban migration which accelerated after 1950, having rural rather than urban skills and lacking capital resources. Their poverty became apparent.

Whether the account in the last few paragraphs can be summarised as ‘colonisation’, I leave others to develop. They identify key elements as to why many Māori are poorer today. The story is elaborated in my Not In Narrow Seas and some of my other writings. (e.g. here and here.) It concludes that the Māori poor lack educational, occupational and social skills, as do the non-Māori poor. A colonisation explanation explains poverty for only a quarter of the population – a little more if it is extended to Pasifika. It is neither a comprehensive account of why poverty exists in Aotearoa New Zealand nor does it provide a diagnosis for its treatment.

We cannot rule out that mainstreaming is a viable policy for supplying public services, providing it is culturally and socially sensitive. It need not be inherently anti-Māori, but it will be if it is done badly without commitment, because it will be anti-those-in-need, and proportionally more of them are Māori.

[1] The results are based upon data specially by Jack Vowles. It comes from the 2020 survey of the New Zealand Election Study research program. The surveyed numbers are small – just over 1000 – and subject to error – about as large as the standard political opinion poll. Thankyou, Jack.

What does Budget 2024 tell us about the current government? Muddle on?

Coalition governments are not new. About 50 percent of the time since the first MMP election, there has been a minority government, usually with allied parties holding ministerial portfolios outside cabinets. For 10 percent of the time there was a majority government and for the remaining 40 percent it has been a coalition government. Even a coalition of three parties is not entirely new. The last term of the Clark-Cullen Government involved three – even four – parties although there were only two in the cabinet with the others holding portfolios outside.

Even so, the Luxon-led one of three parties in the same cabinet is unusual (although every government is unusual). It involves three parties, two of which – ACT and NZF – are strongly ideologically opposed. Winston Peters, from the centre-right of the National Party has explicitly said he wants to stop neoliberalism; David Seymour, on the Party’s extreme neoliberal right, has been only a little more diplomatic about NZF.

Others will write of the resulting political tensions, but as someone who writes about the government’s economic and other policies, I have to take into consideration ideological positions.

While the differences are evident in the way the parties are handling their individual portfolio, the annual budget is a whole-of-government operation which has practical consequences and is not just ethereal aspirations.

So I was hoping that Budget 2024 might shed some light on the political tensions between the wing parties and also those within the National caucus, which contains economics predilections of both the centre right and the neoliberal kind.

To my surprise, the tensions were not that evident in budget. Both ACT and NZF had big expenditure outlays and both seem to have agreed on the government spending cuts but preferably not in the portfolios they hold (although who knows what one day may be leaked to the parliamentary gossips). Both supported mild tax cuts – and some tax hikes – and an increase in government borrowing. Neither seem to have vetoed the other’s ambitions (ACT did want a different tax regime from National’s, but the Minister of Finance pointed out the proposal was impractical given the budget financing constraints.)

There are economic policy commonalities. All three parties are committed to spending big on law and order. The impression is they are all less committed to environmental protection and addressing climate change. (I don’t think they are predominately deniers; climate change mitigation is just low among their priorities.)

They are also agreed on ‘mainstreaming’ policy towards Māori socio-economic disability. To summarise, they are not denying there are serious health and poverty problems among many Māori. But they recognise there is similar distress among non-Māori and there are, numerically but not proportionally, more non-Māori suffering it. (A caveat is that the Pasifika proportions are similar to Māori ones.)

Mainstreaming targets all the distress irrespective of ethnicity rather than prioritising Māori and paying less attention to non-Māori. It is a strategy which deserves exploring but that requires more space than is available in this column.

I do not know where these inequality and poverty issues rank in the Coalition priority list. One journalist flummoxed the poverty issue during the budget lockdown by pointing out to the Minister of Finance that the (rather thin) child poverty report predicted there would be no reductions in child poverty in the next few years. (We are drifting further and further away from the targets set in the aspirational 2018 Child Poverty Reduction Act.) The Minister replied that the budget was increasing the incomes of families further up the distribution. The journalist – perhaps because he did not know enough – did not follow up with the obvious point that if incomes were rising in the middle but not at the bottom then inequality was increasing. Was that the government’s intentions? We have no idea how the Minister might have responded. Perhaps she would have smilingly flannelled.

We are left wondering what the Coalition Government’s strategy towards inequality will be. Neoliberal thinking does not focus on it. The centre-right gives it some significance – hence the interest in social investment (that is another column too). Inequality did not figure strongly in the Key-English Government’s thinking, although it did give additional support to families. However, by indexing social security benefits to prices and not to wages or general incomes – a policy which has just been reinstated – income inequality grew a little during its time. My guess is that this government will be much the same; certainly, it will pursue the reduction of child poverty even less vigorously than the Ardern-Hipkins Government did.

The big difference between the economic stances of the two flank parties is illustrated by the $1.2b set aside over three years for Shane Jones’s Regional Infrastructure Fund, while David Seymour has $47m over four years for his Ministry of Regulation. (In contrast, National got $5m for one year to establish a National Infrastructure Agency.)

Each was a part of a coalition agreement but they reflect quite different visions of how to run the economy. The NZF initiative comes from the highly interventionist approach which dominated economic policy in the first four decades after the Second World War. The ACT approach is an extension of the anti-interventionist approach which Roger Douglas and Ruth Richardson instigated and which has dominated economic policy in a milder form since.

I am not sure how the two approaches will be reconciled and I suspect that neither Chris Luxon nor Nicola Willis know either. Seymour will not have a lot of firepower against Jones until he has an operational ministry advising him. Perhaps the first great political conflict will be resolving the detailed powers in the Fast Track Approvals Bill, which currently gives considerable power to ministers in the great interventionist policy tradition.

Deeper, there may be a commonality in that both parties are prioritising GDP growth and profit (which is a signal for it) over wellbeing and sustainability. (This is a pro-business coalition.) Whether that reflects the majority of the public I cannot say, nor whether the strategy will be successful in the long run.

In the short run we are seeing the Coalition Government announcing much new policy as on-the-hoof response to political pressures and its mistakes. It is a muddle-on strategy, isn’t it? Much like Budget 2024. Promises were made in opposition. Some were quickly implemented in the first hundred days, not always mindful of the long-term implications. Those implications are beginning to shape the Coalition Government, rather than it leading the shaping.