Mike's Minute: Here's the problem with the Reserve Bank economists

The problem with people like Paul Conway, who is the Chief Economist at the Reserve Bank, is they “know” some stuff. 

They sound good in a speech, but their record exposes them badly. 

Paul gave a speech this week to the National Financial Advisers conference. 

He talked about how expensive this country is, and he talked about our lack of productivity. If the speech had been a school project, he would probably have got a good mark. 

You couldn’t argue with what he said. 

We aren't very efficient. Things like construction cost more here than anywhere in the OECD. We were once okay at productivity, but we aren't anymore and our real ability to buy stuff is going backwards. 

He noted before 2020 our purchasing power was growing faster than the OECD's. Now ask yourself a question – what happened in 2020 and post 2020? Covid of course. 

Covid was no one's fault (well, possibly the Chinese). But the response was the key and, in that response, as is well documented, we blew it. We blew it sky high and ended up with inflation north of 7%, some of which was over seen by Mr Conway and his mate Adrian Orr at the Reserve Bank. 

Paul argues inflation is critical given the cash rate helps anchor prices. Does it? 

He cites the prices that make us the most expensive place in the world: rates, power, and insurance. Did the cash rate do anything for those? No. 

Other prices he cited, like butter and lamb, are also expensive and expensive for obvious and well documented reasons. And, ironically, expensive for good reason for NZ Inc. 

Part of the issue is market size. It's why Walmart is successful. It has a population base of over 300 million. We don’t. 

Supply of goods is cheaper per unit when you buy millions of them. We don’t. 

The productivity question has been bounced around for years and never really been solved. Many people don’t even agree what productivity is. 

Is it a robot replacing a human? Is it building a road faster? Is it inventing a thing that changes the world? 

Part of the reason the Reserve Bank blew Covid so badly is they write speeches like Conway's. 

They live in Wellington in small rooms theorising. The moment you give them a bit of real world, look what they do with it. 

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