Christopher Snowdon: Liz Truss didn't break the economy, it was like that when she found it.

Christopher Snowdon writes how the market response to the Truss/Kwarteng emergency budget showed that the emperor has no clothes, and it is a sign that the era of big borrowing is at an end.

Some choice quotes:

Long before the pandemic began, I was troubled by emergency economic policies - ultra-low interest rates and money printing - being in place for a decade without any emergency to justify them. This led to a great deal of inflation, but since the inflation had mainly affected the housing market and stock exchange and had made the rich richer, it didn’t seem to count. Then, in 2020, we had an actual emergency which seemed likely to push us over the edge.

The so-called "libertarian" budget included massive subsidies to cap the price of energy.  The cut in income tax and reversal of a rise in national insurance were hardly enormous measures, and freezing corporation tax (rather than implementing a rise that was indicated under Boris Johnson) is also hardly libertarian, but the word has stuck. 

Of course there should have been measures to liberalise the economy, and none eventuating except a removal of the ban on fracking - a measure that wouldn't achieve much for some time. 

Some saw the mini-budget as an invitation to the Bank of England to raise interest rates. If so, it was an invitation that was declined. Some thought the mini-budget implied that there would be spending cuts, but Liz Truss insisted that there would be none. Instead, Kwasi Kwarteng took to the airwaves to announce that he intended to make more unfunded tax cuts.

Previous governments had at least paid lip service to balancing the books. The Truss administration didn’t even bother pretending. The bond markets, seeing no plan for growth and no sign of an interest rate rise, naturally demanded a greater return on their investment. 30 year yields nudged toward 5 per cent. The pound fell to a low of $1.07. Pension funds that had been making what the Economist describes as ‘obscure derivatives bets’ found themselves short of liquidity thanks to higher gilt yields - although they insisted that they were not short of capital - and so the Bank of England stepped in to lower yields by buying gilts....

Liz Truss was dealt a bad hand and played it badly, but despite the broadcast media spending a fortnight treating every day as if it were Black Wednesday, she did not ‘crash the economy’, as the Labour Party has claimed. The economy was already in pieces and there is much worse to come. Goldman Sachs has already taken 0.6 per cent off the UK’s GDP forecast for 2023, partly because of the rise in Corporation Tax.

....

Interest rates have existed for thousands of years for good reason. They are, to quote the title of Edward Chancellor’s excellent book, the price of time. Or, if you prefer, the cost of impatience. They should provide an acceptable return to lenders and should certainly be above the rate of inflation. The international experiment with very low interest rates has, unsurprisingly, led to governments, businesses and individuals becoming heavily indebted. As people take on more debt, they become increasingly vulnerable to interest rate rises. This leads to a doom loop in which central bankers are reluctant to tackle inflation because interest rate hikes will make people poorer and so inflation persists, making people poorer.

Even in the absence of inflation, interest rates couldn’t be raised because it would ‘wreck the recovery’. An economic recovery so feeble that it cannot withstand an interest rate of one or two per cent barely deserves the name. The economy had become like an alcoholic. Every drop in interest rates and every bout of money-printing made it feel better in the short-term, but they made the addiction worse and was slowly killing it. It was hair of the dog economics.

The left have already started wailing about ‘Austerity Mark 2’, but they are now going to have start telling us which taxes they want to increase to pay for their spending priorities. They may find that they get a rough reception. It is notable that almost the only thing left from the mini-budget is the scrapping of the Health and Social Care Levy. Even Labour didn’t want to keep it. It’s unpopular. Fine. But if you can’t get the public to support a tax specifically earmarked for the NHS - the one thing that normies say they are happy to pay more tax for! - good luck raising taxes for Net Zero and foreign aid.

The MMT loonies will say that the recession could have been avoided if the Bank hosed us down with one more burst of QE. Everything looks like a ‘political choice’ if you ignore trade-offs and consequences, but the number of practical options available have narrowed considerably. As Janan Ganesh says in the FT today, Labour are not going to enjoy governing without a magic money tree to shake.

Hair of the dog economics has had its day. The era of big borrowing has come to an end. We have run out of road. It would be unfortunate if Liz Truss has given economic growth a bad name because it really is our only way out of the woods....

Does Winston really care about the constitution or is it baubles as usual?

So Winston Peters is doing what he usually does, after spending two years in the political wilderness he times a revival to tap the issue of the season, that the other parties aren't doing well at tapping, so he can ride his way back to Parliament with a bevy of people nobody has ever heard of before.

This time it is to tackle co-governance with Iwi, and the embracing of the Treaty of Waitangi in ALL aspects of central and local government.  Now I have some sympathy for that position, as important as it is to consult with Iwi and for Maori to be adequately represented in Government, New Zealand clearly achieves that, with Maori represented in both Parliament and local government on the basis of one-person, one-vote and a general consensus among the two major parties about the importance of including Iwi in consultation on issues affecting them. Winston is trying to do much more than address overreach of that.

He wants to tackle non-Maori fear of Maori cultural and linguistic growth, and dominance, whether it is seen in Maori phrases inserted into the ever declining audiences for television news (which frankly is a market decision, you can just switch it off), or the inclusion of references to Te Tiriti in more and more laws and government programmes.

Winston can tackle this because he is much more obviously accepted as being Maori (David Seymour is not so seen). He also knows he can guarantee that TVNZ, Newshub, RNZ and Stuff at least will seek to paint  HIM as being divisive, even racist and he can run rings around the fact he's spent his political career saying the media is unfair to him.

Winston has a couple of problems though:

1.  There is little evidence Winston did ANYTHING when in power, the three times he was a Minister, to slow down Maori nationalism. There was little of it to respond to when he supported National from 1996-1998, but from 2005-2008 and 2017-2020 under Labour, what evidence was there that Winston Peters ever did anything to push this back?

2.  He put Jacinda Ardern into power, notwithstanding that National clearly had the plurality of support as the major party in the 2017 election. It is disingenuous for him to be able to credibly claim that he knew NOTHING of the Maori nationalist aspirations of the Labour Maori caucus (or indeed the Greens, who were part of that coalition and are even more adamant of claims of Maori nationalist/statist based self-determination). However it is entirely possible Winston just took his portfolio, advocated for his pork-barrel Provincial Growth Fund, and the let the two parties on the left get on with it all. 

It might be welcoming to some to have Winston talk in a way that so much of the media would deem politically incorrect, but as he was with immigration, most of what he says reflects little about what he does. 

His other problem is that ACT not only polls but has multiple MPs to occupy this space. It might be notable that Winston talks mostly about the artifacts of the Maori cultural renaissance and the media expressions of it, rather than the more disturbing undermining of liberal democracy, such as granting Ngai Tahu a seat on Environment Canterbury, to sit alongside elected members with the same powers, or the efforts of Rotorua District Council to gerrymander Maori local authority seats that would represent a fraction of the number of non-Maori voters.  

There is a profound awkwardness of politicians, especially non-Maori ones, talking about these issues, because of a lack of philosophical conviction around what constitutional arrangements should exist for a free liberal democracy, and a lack of willingness to engage with views that claim that the underlying cause of poor socio-economic outcomes for Maori is not simply a legacy of colonialism and subsequent non-Maori settlement. The willingness of some Maori nationalists (especially now in Te Pati Maori) to go down the path of "it's us vs. them" should frighten most people, and if Winston Peters is more effective in having that debate that David Seymour (which I think he is), then so be it.

But don't expect a vote for NZ First to deliver anything transformational.  From 1996-1998 NZ First was a brake on a National Government continuing with free market liberal reforms, but not a stop. Similarly, from 2005-2008 and from 2017-2020 it was a brake on Labour Governments continuing with growth of the welfare state, but put a foot on the accelerator of economic nationalist interventions.  It was not a brake on Maori nationalism, because the policies now being advanced by the Government had their genesis in 2017-2020 (or earlier in the case of He Puapua).

There are reasons to be sceptical about ACT achieving much in this space, or National, but these pale in comparison to the reasons to be sceptical about Winston Peters. 

"Restore Passenger Rail" is a pathetic facsimile of Extinction Rebellion misanthropy

So for several mornings a group calling itself "Restore Passenger Rail" has shut down the southbound lanes of the Wellington Urban Motorway approaching the Terrace Tunnel.  This is completely bizarre stuff.

The disruption caused is enormous, not least because this is State Highway 1/2, the key route bypassing central Wellington, connecting the Hutt, Porirua and Wellington's northern suburbs to the southern and eastern suburbs, including Wellington Hospital and Airport.  Most recently they blocked State Highway 2 near Melling, making it impossible for some people to get to Melling Railway Station by car or bus.

The group is calling for passenger rail services to be returned to the extent they were in 2000, presumably excluding commuter services in Wellington and Auckland, both of which have expanded since then (Auckland has been electrified, with much more frequent services, and Wellington services extended to Waikanae, also with improved frequencies).

When asked on RNZ National, one of the spokespeople called for services to be restored as follows:

• Auckland-Wellington (which is actually operating although the overnight Northerner was cancelled in 2004)
• Auckland-Tauranga
• Auckland-Rotorua
• Wellington-Napier
• Picton-Christchurch (which is also actually operating)
• Christchurch-Dunedin-Invercargill and
• Christchurch-Westport (I think he meant Greymouth, which is also operating)

So they don't actually know what services are running.  They claim this is all about climate change and essential to save the planet.  This is completely unhinged, and if it wasn't a cause close to the heart of the Green Party and many on the left, a rational assessment of them would call their arguments misinformation and call them extremists - but no.

So let's make it clear:

1. Even if all of the intercity passenger train services that existed in 2000 were restored, the idea it would make a difference to emissions that was discernible in terms of climate impacts is absurd. Some people would take a trip they wouldn't have done before, some would have gone by bus, very few would have flown and a few would have driven.
2. Unless the trains carry several bus loads on average, every trip, they will generate more emissions than travel by bus.
3. It's all irrelevant because unlike agriculture, transport emissions are part of the Emissions Trading Scheme, within which a finite amount of emissions are available and sold as part of the price of fuel. Any shift will simply result in more emissions being available for other uses.

However I don't think any of the protestors know much about passenger trains and in fact they are just a NZ version of the Extinction Rebellion misanthropes.  They don't even know the train to the West Coast goes to Greymouth not Westport, any train enthusiast knows what trains used to run.  Of course they don't care that stopping traffic generates a LOT of additional emissions.

For all of their talk about saving the planet and humanity, one of the Extinction Rebellion founders, Roger Hallam, explicitly said he would block a road that had an ambulance with a dying person on board.

This isn't just environmentalism and it isn't really railway enthusiasm (which I have some sympathy for, because I like trains), but is hatred of human beings.  Hatred not only of their freedom of choice, but also their lives. 

What's particularly nuts is that Parliament is calling for submissions on the future of inter-regional passenger rail. (deadline next Friday 21st October).  The claim by the protestors that they have "tried everything" is vacuous empty nonsense.  This is undoubtedly the most rail friendly government for some time, and billions of dollars have been poured into Kiwirail to upgrade tracks and expand services, albeit the passenger focus has been on Auckland and Wellington, not least because most of the demand for intercity services was lost during travel restrictions under the pandemic.  

I'm not a fan of subsidising intercity passenger rail, because there are unsubsidised other modes that exist, and one of them (buses) will take some time to recover after the loss of international travel. However, I like intercity passenger rail, and if Kiwirail can develop a business case for new services, then good for them.  I was involved in reviewing intercity passenger rail viability in 2001, and the figures seen then were poor, but a lot has happened since then. The population has increased, overseas travel increased (although it may take another year or two for numbers to recover) and there may be more interest in travel  by rail, so I think there are merits in Kiwirail assessing opportunities or if it is not interested, in it being required to treat any potential private providers in a non-discriminatory manner.

but these protestors aren't REALLY interested in passenger rail. Do you really think they would stop disruptive protests if five new passenger train services were announced by the government? Of course not.

Of course not, they want attention, they want to promote catastrophism and they don't care for either the trappings of a free society to communicate their views like everyone else, or even a government that is sympathetic to their cause.

It's notable that the Government has said little about them, neither has the Green Party or Wellington's new Green Mayor, Tory Whanau. National's Chris Bishop called them "idiots" and rightly so, but maybe the Labour and Greens politicians LIKE measures that make driving more difficult, and don't want to abuse them?

They wont stop protesting until it becomes too hard for them to do so, they will block more roads and demand "action" from whatever government is in power, regardless of the action being carried out for their cause.  Because what they want is applause and approval from the like-minded, their own little network of misanthropes, and most of all, media attention so they can be interviewed, endlessly.  

This raises their social standing to have disrupted "evil" car "fascists" and drawn attention to a "righteous" cause (diverting taxpayers' money to some train services). They'll feel special and privileged, and hopefully get selected to go on the Green Party's list.

I doubt ANY of them have ridden on the Northern Explorer, Coastal Pacific or TranzAlpine trains, ever! Because it's not about trains.

It is, after all, performative, status-seeking, social misanthropy. 

Climate change and agriculture

I accept there is anthropogenic climate change, and there is going to be an ongoing process of reductions in emissions due to improvements in efficiency and technology.  Because New Zealand has such a low population relative to its production of agricultural commodities, emissions from agriculture are high per capita, compared to virtually all of its trading partners.

As a result, the agricultural sector will have to be a part of that, and New Zealand should be expected to cut emissions along with the rest of the world. 

However, most of New Zealand's agricultural production is exported, and export markets for agricultural commodities are heavily distorted by a mix of high subsidies, tariffs and other import barriers from major economies, specifically the European Union and the United States (Japan as well, but that affects the rice market).  As New Zealand's market is both open to imports and there are few subsidies, New Zealand exports effectively because it is an efficient producer, which also happens to have some of the lowest emissions per tonne of production in the world.  One study indicated that for lamb, New Zealand emitted 688kg of CO2 per tonne produced and imported to the UK, compared to 2849kg of CO2 for UK produced lamb. 

So let's paint the picture. New Zealand farmers, located further away from most markets than any other producers, compete on a global market, a market heavily distorted by import quotas (restricting how much New Zealand farmers can sell), tariffs (taxing their products but not taxing domestic producers) and subsidies (undercutting the higher cost of production). If there were largely a free market for agriculture, similar to many manufactured goods, then inefficient producers (that use more energy and emit more CO2) would be out of business or would need to improve efficiency.  

However there is not. There were some tender attempts by the Bush Administration to get rid of export subsidies for agriculture, if the EU also agreed, but this all faltered, and since the Obama Administration there has been little to no interest from the US in multilateral trade liberalisation (and the EU has never been keen on liberalising agricultural trade). 

For New Zealand farmers to face payments for emissions on a scale or in a manner that undermines their export competitiveness is likely to have several effects:

• Reducing the scale of New Zealand agricultural production 
• Increasing the price of commodities New Zealand exports
• Increasing the production of LESS efficient and HIGHER emitting producers that are heavily protected and not required to pay for emissions.

In short it risks exporting emissions, by shifting production to other economies.

The most generous view of this is it is futile. It buys virtue signalling from unproductive multi-national lobbyists like Greenpeace and enables Jacinda Ardern and James Shaw to claim they are "world leading", but the savings in emissions get replaced by higher emissions from elsewhere. When New Zealand reduces production, others will sell to those markets instead, at a slightly higher price, but with higher emissions and less economic efficiency.  The least generous view of it is that it is economic treachery.  It harms a local industry to ineffectively achieve a policy objective.

It would be quite different if Ardern and Shaw went to Brussels, Washington, Canberra et al and argued that New Zealand will charge for methane emissions if THEY will, and if THEY will introduce measures to reduce emissions in agriculture that at the very least do not distort international trade in agricultural commodities any more than their existing protectionist arrangements.  It presents options that show New Zealand is willing to move if they are as well.

Sure, whatever New Zealand does on emissions will make ~0 impact on climate change, but if there is going to be action on emissions New Zealand has to join in, or it faces the likelihood of sanctions from several major economies. What matters though is this small economy does not kneecap its most productive and competitive sectors in order to virtue signal.  

Of course there are plenty who hate the farming sector, either because of what they produce and who they vote for, and the Green Party thinks agriculture should go all organic, produce LESS at HIGHER prices, and you can imagine the impact of this on the poor (but the Greens think they can tax the rich to pay for everyone).  They are very happy to spend the tax revenue collected, but treat it as a sunset industry.

So sure, agriculture needs to be included, but there needs to be a Government that doesn't want to shrink the sector in which New Zealand has the greatest comparative advantage. 

Free public transport is not an environmentally friendly policy

Auckland's leading leftwing Mayoral candidate, Efeso Collins, has as one of his key platforms making public transport "free" at the point of use, by which he means he'll force everyone else (ratepayers and he's hoping taxpayers, as well as car and truck drivers) to pay for it.

The Greens, who want everything to be free, except your property rights, speech, powers to buy and sell and contract generally, support this.

Given how much publicity has been given to this idea, it's worth giving it a review.  You'll say, quite rightly, that a libertarian could never countenance forcing people to pay for others to get around, and you're right. Philosophically, the idea that if you want to travel somewhere, for whatever reason, that other people should be forced to pay for your choice of travel, is an anathema to individual liberty.  

However, let me put that to one side.  Does the idea that public transport should be fully taxpayer funded, has some merits? Could it actually result in less traffic, less pollution?

Tallinn, Estonia implemented free tram and bus travel for local residents in 2013. The National Audit Office of Estonia reviewed the impacts of the policy and came to the following conclusions:

• It did not reach its goal of reducing car journeys
• Public transport use increased, but not significantly
• Bus network doesn't meet the need of car users

A more detailed study of the impacts was more damning and it was based on a large scale survey in the city.  Note Tallinn previously had a fare-box cost recovery level of around one-third, so one-third of operating costs were recovered from fares, so fares were not high before. 

• Trips by public transport increased by 14%
• Trips by car decreased by 10%
• Trips by walking decreased by 40%
• Average distance travelled by car increased by 13%, resulting in total vehicle kms driven increased by 31%

Much of the public transport trip increase was for 15-19yos, 60-74yos, those on very low incomes, the unemployed/not in education.  However public transport trips for those on higher incomes decreased due to crowding. Higher income people preferred to drive. 

In short, free public transport saw more trips, most of them came from active modes, meanwhile the reduced car trips were more than offset by the remaining car trips being longer distances.  

This shouldn't be a surprise, Hasselt, Belgium (78,000 people) introduced free public transport in 1996.  The experience of that city was mixed:

• Public transport trips went up ten-fold
• 63% of additional public transport trips were existing users travelling more frequently
• 37% of additional public transport trips were new users, but only 16% came from car trips, the remainder were from bicycle and walking.  So the majority of mode shift was from active modes.
• There was also a five-fold increase in the bus fleet, doubling in bus routes and significant increase in frequencies at the same time as abolition of fares
• There was no noticeable impact on car ownership or change in trip mode share
• Free fares were dropped in 2014 because of the cost, with fare concessions applying only to only a small minority of passengers.

In short, free public transport saw people who already used it, used it a lot more often, and the majority of new users switched from walking and cycling to riding public transport.  

Templin, Germany (15,000 people) also introduced free public transport, in 1997.  The result were:

• 12 fold increase in patronage, with the majority being young people and children
• 35-50% of the modal shift came from walking, 30-40% from cycling, with only 10-20% coming from car trips
• Vandalism increased attributed to the higher numbers of younger passengers.

Once again, the main impact of free public transport is to attract people from active modes, so people ride buses instead of walking and cycling.  This costs more for taxpayers, costs more for the environment and so is a negative net impact overall. 

In NONE of the case studies of free public transport was there a meaningful impact on traffic congestion.  

In ALL of the case studies the two main impacts were:

• to encourage people who already use public transport to travel a lot more often
• Reduce walking and cycling (because people who walked and cycled found it quicker and easier to just hop on a bus)

Free public transport has a small impact on driving, but it is hardly worth the cost. It has a big impact on walking and cycling, which is a transfer from zero emissions transport to transport that generates emissions, both directly (fuel and electricity) and indirectly (production of buses/trams/trains, road/rail wear and tear).  

Some may say there is utility in people doing more trips by public transport, but if they were trips that weren't going to happen anyway, then the question is why should taxpayers/ratepayers pay for people to do joyrides, to visit friends, visit places they never thought of going before, just because it's free? Why is that a good use of taxpayer/ratepayer money?  

The simple truth is that free public transport is a political bribe that sounds nice, and gets a lot of support from some on the Green-left despite the evidence being that it is anti-environmental.  It might make a small difference to car trips, but it makes a big difference to reducing walking and cycling - and it generates a lot of arguably unnecessary trips.

So maybe consider that when voting in the local elections.